The Study Of Reasonable Risk Measures Of Commercial Bank's Regulatory Capital Measure For Market Risk

Since 1970s, the financial market changed a lot. Instead of credit risk, market risk has been the centre of financial risks. The market risk that the commercial banks faced has increased more and more. In 1996, Basel Committee required banks must to measure capital for market risk, and they encouraged advanced banks to use the inside model based on VaR. However, the studies of Artzner and three other authors (1997, 1999) showed that there is something unreasonable for VaR——it goes against the subadditive property of coherence. Use it to measure the capital requirement of banks will lead to arbitrage of regulatory capital and encourage banks to centralize risks.The research of Artzner brought the upsurge of studying of risk measure. From then on, lots of researchers criticized the VaR model from different aspects, and suggested different new risk measures. Every risk measure holds true for special field. The risk managers and the authorities of supervising have to find out a risk measure which will satisfy their purposes. But what condition should the risk measure that fit for measuring the regulatory capital for bank's market risk satisfy? If the VaR model is not suitable, which risk measure is suitable? These questions are just what this paper wants to study and answer.After the analysing, we got the conclusion that the risk measure which, suit for measuring the regulatory capital for bank's market risk should satisfy 8 properties. They are "standard 1"-monotonitity, translation invariance, convexity, consistent with first and second order stochastic dominance, and "standard 2"-can measure the extreme risk, can reflect all information, easy to calculate and sensitive for liquidity risk. We compared the five measures of risk -VaR, ES, spectrum risk measure, Wang transform risk measure and the new risk measure which was originated by this paper under "standard 1" and "standard 2". VaR is undertaken widely, and the concept of ES is close to VaR. So scholars pay more attentions to ES than other new risk measures. They do lots of work to arguing the advantage and disadvantage of VaR and ES. In our paper, we discuss it for one chapter.At last, we got two conclusions: (1) In the sense of theoretics, the new risk measure is the most reasonable risk measure for measuring capital for market risk; (2) consider the actuality of risk measure technique in commercial banks in our country, ES is the most reasonable risk measure in the practice at present.