Research On The Management Of China's Financial Market Risk By VAR System

At present, lots of great reforms have happened in China's financial market: in 21 July 2005,the foreign exchange rate system was changed to be a floating system with necessary management and pining on a basket of kinds of currencies; in 8,sep 2006,China's financial futures transaction institute has inaugurated in Shanghai; At the same time the degree of marketization of China's interest rate has been continuously improved. In early 2007, foreign financial institutions have been permitted to enter into comprehensive monetary business of RMB. Although those marketization reforms set a stable foundation for China's financial system development, China's management level of financial market is still low due to the behindhand risk management skill. The implement of VAR could improve China's risk management level and promote the competitive ability of financial institutions.This paper firstly introduces the financial market risk conception and its categories, then exemplifies several traditional methods on market risk and points out their respective merits and flaws. After analyzing the shortcomings of traditional risk management methods, this paper brings in the VAR's conception, backdrop, the application of the risk measurement and the calculation models of VAR with respective merits and flaws. When analyzing the present situation of China's financial market risk management and the necessity of the introduce of VAR, firstly this paper discloses several risk factors including interest rate, foreign exchange rate, the price of securities and so on. Secondly comments on the present situation of risk management in China so as to find the flaws. Then, this paper takes further step to argue the necessity of introduce of VAR into China.The next part firstly details the feasibility of the implement of VAR in China from the institutional economics point of view and analyzes the institutional level and changing steps of the implement of VAR. On this basis, this paper argues the institutional changing path and problems that should be focused. As for the implement of VAR in China, this paper concludes the modern management system of financial market risk with VAR from three aspects: the organization system for risk management, the function system and the intelligence system.Because this paper makes an instructive exploration on how to lift up the level of managing financial market risk in China and puts forward some relative measures, it has some practical significance.