The Pressure Test And Its Appliance In Chinese Bond Fund Risk Management

The risk of financial activities within market economy is some kind of normality .As the financial framework which assumes the risk, a bond fund is asked to control the risk cost, reduce the influence coursed by the uncertainty factors, improve the efficiency and contain more risk factors in the risk management sys. These have been a task which needs to be studied and solved in today's financial situation. Because of the endless changing of the bond fund management environment and the competition between the bond funds, specially the influence about the global financial free progress, the risk of the bond fund management has become bigger. So it is necessary to build a risk management sys which could be used in the whole bond fund risk management.According to BCBS, the exchange risk is defined as the risk which a bank faces when the exchange fluctuates disbennifitly. Because the exchange is a kind of asset of the bank, the essence of the bond fund risk management is to make sure the security and yield of the holding bond assets. At the same time, the content of the bond fund risk management is to differentiate measure and control the exchange risk coursed by the holding bond assets.As the financial free progress in China, the exchange risk management is more and more important. And it has been the most major part of the bond fund risk management.There are several major problems of the bond fund risk management in Chinese financial market. Because the exchange had been controlling strictly for a long time, the exchange risk management sys is far from perfect. And the Chinese financial frameworks are accustomed to manage the risk ill-considered。The banks lack the microcosmic risk management and the using method are dropping behind. The fix quantifies analysis tools are used generally. But the most popular method are convex and duration method. The real exchange time limit models are rarely used. And the people with the ability of managing the exchange risk are far from need.Based of the situation of Chinese exchange risk management and the personal experience in these areas, these paper focus on the pressure test and its appliance in Chinese bond fund risk management.The pressure test was mentioned firstly in 1996 to answer the BCBS. From the crisis explosion of Southeast Asian in 1997 and the debt crisis of Russia, the pressure test got more and more attention because of its advantages compared with VaR method. The modern countries governments ask their financial frameworks to add the pressure test to the year financial reports today in order to make the shareholders clearer about the risk situation. Though the study of the pressure test got up late, some international companies already add the pressure test into their risk management sys. Chinese bank are beginning the study of the pressure test.Nowadays, the protection period of WTO is coming to the end. Chinese finance industry will face the great challenge from global finance market. All kinds of financial risk management measurements and supervisions are of great value, while pressure test is one of it. How to carry out the pressure tests theoretically and practically is what we what to know. With the pressure test we can improve the ability of financial impulsion and the supervision strength. The first chapter is an introduction of the background of the pressure test, which include the development procedure and the basic concept of it. It is based on the synthesis of relative literatures from both abroad and home.Additionally, a particular attention is paid to history situation method and hypothesis situation method. The general process of pressure test is divided into three stages which are separately the identification, conceived situation, and situation analysis.The second chapter emphasizes the necessity of the interest risk management within the field of bond fund in China nowadays, with the growing size of security market. According to the request of BCBS in 1998, internal model and pressure test are both needed when market risk is calculated. Except for the self-limitation of VaR and the models of the same kind, the need for the pressure test is for the management of bond fund with the development of emerging Chinese financial market. Considering the maturity of pressure test theory, the expanding practical experience of global banks, the possibility for bring in the pressure test is increasing ,with the support from relative supervision committees and the evolution of necessary technology.The third chapter is the core of the paper. Firstly, the two consumptions of pressure test are given which are about effective market and weak stable time series. The effective market theory is mainly about the process that the price is formed by intelligent traders, and wrong judgement cannot have effects on price long. Investors can make their profit maximum according to the inner value of securities, the yield of which is of normal distribution. The second condition of pressure test is weak stable time series, which is rely on the lag of time but not the beginning point of time. Then , possible defects of pressure test are analyzed. At last a demonstration is given, which is about six bond funds. We have about one thousand to eight hundred data of each fund, from which the yield rates and the according fluctuation characters are got. The result is that the yield rates of the funds can be modeled by Garch and the achieved outcome is that, if the fluctuation rate of the fund is great, the pressure test is effective for risk management, otherwise not so effective.The fourth chapter is the conclusion and suggestions resulting from above analysis. With the evolution of Chinese interests market, the fluctuation rate of interest will grow up and the corresponding risk will increase too, which makes bond fund manager and their assets under higher risk. Therefore, risk management is very crucial to the managements, while pressure test is the one of the most important mean. The pressure test itself is of defects too, so other means are also needed for the general interest management.