Research On Commercial Bank's Market Risk Base On Basel II

The Bank for International Settlements (BIS) announces that Risk Measurement Management will be constrained regulation after 2006 and recently Risk Management not only affects the profits of a Bank, but calculation of VaR and Risk Management has become important. The Study is focus on Capital Requirements and Risk Management strategies in Banking by using VaR and referring to Basel rulings. This article presents an application of Delta-Normal Method or Variance-covariance Method (Equally Weighted Moving Average & Exponential Weighted Moving Average),Historical Simulation Approach and Monte Carlo Simulation Approach to estimates the Value at Risk(VaR) of a market position including stock,government bond,fund and exchange rate, to find an Optimal appropriate VaR model and Economic Profit for Capital Requirements.First this paper we describe the five internal models to calculate VaR. Then we compare the calculation of eligible capital with foreign exchange risk assets and standardized measurement approach which is from the truly data from one of a banks in China requiring by domestic authorities to assess the market risk. Finally we evaluate the performance of different VaR models. The conclusions of study are as follows:(1) Compare four internal models and Standard approach in estimating VaR, the empirical result show that their own internal models to calculate VaR we can acquire capital requirements minimum.(2) The Bank develops internal models in estimating VaR for Asset allocate,Performance measure and Cost down and Risk management strategies is better.(3) Its implied volatility and decay factor of the parametric in estimating VaR for Delta-Normal Method (Equally Weighted Moving Average, EWMA) it can adjust VAR the most optimal than other three models.