Study On VaR Technique And Its Application In The Security Market Of China

As the reform and opening-up in China,many foreign companies come to our country.They have got the advanced technology in risk management.In order to competite with them,we should improve our risk technology and management.Risk management is the essential part of the finance.From the 90^th,we are seeing a lot of financial disasters,so how to estimate the risk and how to do keep away the risk is important problem in China.This paper provides an overview of the risk management methods home and abroad.VaR(Value at Risk)technique,as a core technique in risk management,is widely used by financial institutions and their regulators.We conducted a questionnaire survey among the risk manager of some companies.Both in the academic environment and the security company,there hasn't a uniform cognition on the risk management technology.This paper gives the simple introduction of the basic principles and VaR methods.It gives especial attention to the three main methods of VaR—historical simulation,Monte Carlo simulation and parameter method,include the prerequisite,preferences and realization.It also gives the exposition of the Back testing technique.We choose the newest daily dealing data of Shanghai Index to calculate the VaR using the three methods above.Because of the simulation times and preferences,Monte Carlo simulation does not give out a good result.In recent two years,the historical simulation is not that useful as before.In the parameter methods, this paper introduces the ARMA(r,m)—GARCH(p,q)model to estimate the return and the volatility.And with the back testing,we can get that this model is very useful at any confidence level.It is the best method to value the VaR of Shanghai Index in our security market nowadays.At the end of the paper,it provides some development suggestions of the risk management.Pay attention to policy orientation is also important in risk management. And there is still a long way to go in our risk management.