Research Of Risk Assessment On China's Stock Markets Based On Extension Method

As a highly accumulation establishments of money and capital, the stockmarket is an important way of market allocation of resources. But, it is also ahighly risky market with many risk source, strong conduction and social harm.When the market risk outbreak suddenly, it will lead to prices fell sharply fast,causing huge book value of the assets disappear, credit chain fracture, zoomingloss results, and quickly caused a series of chain reaction overall the society andeconomy system. At present, China's stock markets accounts in Shenzhen andShanghai have totally reached more than one billion. Stock has became a topic tomany investors include students and workers. And a large amount of moneytransferred to stock market, the result is China's household savings fell for thefirst time in five years. All this further aggravate China's stock market risk anddanger to society. In such circumstances, the establishment of stock markets riskassessment model for the specific circumstances of China is more theoretical andpractical significance.Domestic and foreign scholars have been trying to establish the right stockmarket risk assessment and early warning models. Currently used is VaR andartificial neural network, but they also had limitations. VaR is not an effectiveway to adding the different risk, and the forecasting results of artificial neuralnetwork are relatively poor. These models can not satisfy China's stock marketrisk features as high system risk, serious policy implications, irrationallyresponse of investors and so on. Extension evaluation method as an emergingdisciplines and theories is still not perfect and mature, but it could combine thesituation logic with the dialectial logic. It could consider the reasoning, form,connotation and denotation of things, and quantitative describe both qualitativeand quantitative matters of process. So, the paper is trying to build a stock marketrisk assessment model using extension method which suit for China's economiccharacteristics based on researchs by scholars at home and abroad.This paper firstly introduced the basic knowledge of extension assessmentmethod, discussed the characteristics of extension assessment method and theirfeasibility and value of practical application so as to apply the method to the stock market risk assessment. Then, the paper tries to build the stock market riskevaluation model using extension method. It selected stock market's riskassessment indicators in accordance with principles as macroeconomic andsensitivity based on the theoretical research results. Next, it standardizeindicators by adopting mapping, applied hierarchy analytical process indetermining weight, and draws stock market risk assessment model by relationfunction. Finally, the paper analyses China's stock market risk using theestablished risk assessment model. The results proved that the extensioncomprehensive risk assessment model is feasible and advance for practicalapplication. Then it makes recommendations and ideas for further study againstthe existing problems in the course of the study such as limited choices ofrelation function, need of improvement on weights determining method.