The Application Of VaR Model In The Risk Management In China Stock Market

Since 1980's, with the continuance of Chinese economic reform, more and more enterprises obtain the capital through direct financing, and lots of investors also enter into the stock market. However, the stock market is just a beginning market, and it is not advanced and perfect. The investors are facing more risks, especially the systematic risks which cannot be avoided through portfolio investment.The paper firstly analyzes the kinds and character of the risks existed in all stock markets. The risks in the stock market refer to the possibility which make the expected return of the investors different from their real return because of kinds of uncertain factors. The risks have 5 characters and they are divided into two kinds, including the systematical risk and unsystematical risk. The systematical risk refers to the risk brought from the change of policy and market. It is mainly from the macroeconomical condition and affects the whole market. The unsystematical risk refers to the risk brought from the separate listed company and only relates to separate stock. The stock market in China was founded in 1981 and came into being in 1987. Since 1991, the market developed much quickly than ever. Although the market started much later, it has gained a lot. Besides the same 5 characters as the stock markets in other countries, it also has its own peculiarity.Secondly, the paper reviews the modern financial theories which are the basis of modern financial risk management, especially Markowitze's theory of portfolio and Sharpe's CAPM promote the development of risk management from qualitatively to quantitatively. In Chinese stock market, the investors are weak in the techniques of quantitatively analyzing the risk management, and the paper introduces the VaR-value at risk, which is the most advanced technique in risk management, and also analyzes its shortcomings and its applicability.Thirdly, after knowing the basic concept of VaR, the paper choose the sample data from the stock market, analyze the two different investment objects of stock portfolio and the stock index future, and combine these two objects to form a new portfolio to obtain the final result. Through concrete evidence, the paper analyzes how to use the VaR-value at risk in our stock market and under the framework of VaR, the paper studies to optimize the capital distribution and the management of portfolio. The investors can set up the forecast of the future market, using the VaR analysis of the sample data to estimate the floor level of sample in the following tendency. Based on the analysis, the paper puts forward four suggestions.The paper mainly designs to provide a method of thinking to control the risks in the market, so the investor can clearly know his present condition and can early make his determination of investment in the future market to avoid the loss and risk.