The Application Of VaR In Risk Measurement Of Security Market

The pace of the finance globalization and market integrity will speed up and the turbulence of the financial market in China is also increasing. It is a task in the top of the agenda of central bank and securities regulation institutions of every country. Stock market is always regarded as an area with most potential financial risk. So it is also a frontier of financial risk prevention. Security market is a kind of market where high return come together with high risk.The security market in China is a new, developing and immature market. Accordingly, the risk of this market is outstanding. With the entrance to WTO and upcoming international capital inflow and outflow and the introduction of new technology, the weakness in the institution of our security market and the shortage of regulation skills and methods will make the risk more complicate and internationalization. As the core of the financial risk management, the measurement of financial risk directly determined the validity of the risk management and prevention. It is necessary to do the empirical studies on the security market in China with modem investment theory, construct risk measurement system and imply valid risk control.This paper works over about VaR's application in security markety. VaR is a method which use statistics method to measure financial risks and apply how to elude risks.Now there are many methods to measure VaR,.in this paper I use GARCH model to calculate VaR. The demonstration research indicated that the GARCH models can describe the heteroskedastic character of the yield list's residual. Choosing the GARCH models can effectively estimate VaR, and measure the market risk.This paper uses VaR method to work over two stock exchange's index in demonstration. In this paper, I set up two GARCH models, and figure out every day's value of VaR at different notability level. Compared with real yield then measure the risk.