The VAR Model And Its Application In The Exchange Rate Investment Risk Management

July 21 2005,China started landmark reform on Renminbi exchange rate policy, and linked the currency to a basket of currencies.The basket of currencies includes mainly the currency that have large volume of trade with China such as US dollar,EURO dollar,Japanese yen and South Korean wons etc.But People's Bank of China hasn't announced the proportion of each currency.The settlement of proportion determine directly the volume of exchange rate risk.Besides,for exchange rate investment,the proportion of investment determine the volume of investment risk we face with.VAR technique is a new risk management method that has been developed in 1990's.As a quantitative model to measure and control financial risk,compared with traditional models, it is easy to understand and apply so as to have more practical and referential significance.At present,VAR technique has become one of main methods to measure market risk,assess achievement and expose information in the world.This paper introduces the VAR method to the control of exchange rate investment risk.Through the improvement of VAR method,using the random searching method,at the foundation of the recent exchange rate data,I calculated the best proportion of each main money.The paper has five chapters and eleven sections.In the preface,the background,the significance of research,the analysis of domestic finance risk management are introduced briefly.Chapter 2 describes systematically the basic principle and calculating of VAR model,the creation,the application the advantage and disadvantage of VAR model.The calculating method includes analystical method,the historical simulation method and Monte Carlo simulation method.Chapter 3 improves the calculating method of VAR model.It introduces importantly the random searching delta-normal method and the improvement the Monte Carlo simulation method.In chapters 4,the domestic exchange rate policy and the management of exchange rate risk are summarized.Chapter 5 is VAR model's application in exchange rate investment risk management.Firstly,it introduces detailedly the policy of the basket of currencies nowadays.Secondly, taking advantage of the exchange rate data of Renminbi yuan to US dollar,EURO dollar,Japanese rens and South Korean wons in recent years.Using the random searching...