Theoretical Research And Application Of VaR And CVaR In The Financial Market Of Our Country

VaR, a new tool for measuring financial risk and risk control, was developed in the 1990s. It iseasy for operating and has widely applicable application comparing with traddtional ways ofmeasurement.Expected Shortfall, also named Conditional VaR or Tail VaR, is the conditional means of valussurpassing VaR (Value at Risk). It reflects the average loss level over VaR. It is a new tool formarket risk measurement.In recent years, VaR and CVAR (Expected Shortfall) has become popular and widely usedmethods for risk measurement in the field of finance. The definition of VaR is: the maximumloss of portfolio in specific time scale under a given probability. The merit of VaR lies insummarizing different market factors and different markets into just one number and canaccurately measure the potential loss due to different reasons and interaction.This, in a certain extent, has adapted to the trend of dynamic, complexity and integrity of thedevelopment of financial market, but some defects of VaR still exist. At first,the tail risk,which isthe risk of surpassing the VaR, is not considered;Second, it is not a consistent tool for riskmeasurement. Artzner (1997) raised the concept of ES (Expected Shortfall), which measures themeans of loss supassing VaR, so it is a consitent way of measurement.This paper gave an accurate theoretical analysis and analysis example based on the VaR andCVaR model. S-PLUS was used for the caculating the VaR and CVaR eatimation of loss seriesbased on the GPD and normal distribution and GARCH model.These models were used for practical analysis on the resturn series of the Shanghai Secuties 180Index and Shenzhen Components Index. The ultimate research indicates that the distribution ofindex return, the amount of data selected for the analysis and the degree on confidence cangreatly influence the accurateness of the VaR model and the research effect by using CVaR ismuch better than VaR. This paper also gave a introduction about the application of VaR andCVaR on investment portfolio.