A Comparison Among Measuring Methods Of Financial Market Risks And An Envision Of New Frame

After the Second World War, the economic structure of the world has changed vitally, which led into the uncertainty of market environment, esp. the frequent vibration in the International Currency Capital Market and Exchange Market.Since the 1980s, the breakthrough of financial theories (represented by the option price) and the innovation of finance (represented by the finance derivative tool) have contributed to the efficiency of financial market on one hand, and resulted in the increase of market fluctuation interaction, the amplification & infection effect as well. Besides, with the tendency of liberalized finance worldwide, the credit risk in the 1970s has been replaced by the market one.In the recent years, numerous banking institution and transnational corporation have gone bankruptcy as a result of great financial loss, failing to manipulate the market risks.Their tragedies reveal the truth that market risks are the major ones that banking institutions are facing to. The key to the market risks manipulation is to measure the risks, that is, to make quantitative analysis.①The traditional risks measuring tools used to be basically linear, which proved to be unsuitable to the non-linear financial derivative tool. Consequently a new tool is greatly needed to both handle the non-linear problems and generalize the market risks of security combination. Value-at-Risk(VaR) is such a case in point. In the report of"the Practices and Principles of Derivative securities"drafted by 30-country-group in July, 1993, the supervising organization made the first praise that they favored the VaR measure to control the market risks. Later on, VaR method has been widely used in risks measurement, performance evaluation, and financial supervision. And VaR technology has been improved and developed a lot. As the main measurement model of financial market risks, VaR measurement technology has become the international standard of financial risks manipulation and widely used by major banks, investment companies, securities companies and financial supervising institutions.VaR has obvious advantages, which can combine the expected future loss with the chances of it, integrating different market factors and different risks into a figure. It can exactly measure the hidden loss caused by different risks and its interaction benefit the managers, investors and financial supervisors to make the actual risks of financial institutions under control.②The enlarging financial market & transaction make itself more dynamic and complicated, besides, the development of financial theories and engineering make the measurement technology of financial market risks more complex and sophisticated. VaR measurement also involves some defects, such as fails to concur and correspond with the economic significance of risks. The Conditional Value-at-Risk(CVaR)is a concurred measurement which both filled the blanks of Var and inherited some of its advantages. The combination of VaR and CVaR provide the enterprises and financial institutions with more sensible and sufficient standard of risk measurement.③The risks manipulation problems are linked with market factors such as specific financial market price mechanism, market operating mechanism, investors'be- havior mechanism. A grasp and understanding of the operating mechanism of financial market, the behavior pattern of financial capital price, the characteristics of the investors'behavior, and even the nature and characteristics of the whole financial system, is the headstone and premise of scientific risks manipulation. It's a pity that the traditional financial theories have its limits as far as the nature characteristics of financial market are concerned. The theories could neither provide persuasive explanation to the current situation nor justify the abnormalities; the typical financial theories are based on the traditional ones, and its respective risks manipulation methods and technologies couldn't function as a warning or make itself immune to the big financial crisis. Inherently the financial market is an open and complicated system, which has complicated involvements and consequently has the properties of separation, hysteresis and agglutination. The system is consequently reacting to the external effects non-linearly. The traditional financial theories attribute the vibration of financial market to the external interference factors, ignoring the inherent dynamicity of the financial market, which is very complex, resulting from the non-linear interaction mechanism. The traditional financial couldn't find a solution to big financial risks or crisis. Understanding the non-linear dynamic characteristics of the financial market makes a new angle to study the nature characteristics and the risks manipulation of the financial market. The non-linear nature of financial market helps the further and better understanding the operating mechanism, the price vibration mechanism of securities, the behavior characteristics of investors and its interaction mechanism, and further have a general idea on the principles and origins of the risks. More scientific means and methods will be found to measure, guard and control the risks.This paper focused on the development of the risks measurement of financial market. It first analyzed the defining characteristics, origins and definition of the risks. Secondly it compared and analyzed the main methods of measuring the risks, disadvantages and advantages are revealed through it. Thirdly, a new assumption and structural frame are put forward to measure the risks of financial market.