Research On Practical Effect Of VaR Method In Measuring Risk

As a worldwide pandemic risk management tool, how can VaR plays it's role in risk management and prevention of financial crises, how to use VaR tools to manage risk is the key problem which is going to be solved in this paper.In this paper, we described the definition of VaR methods and basic principles, use em-pirical research to reveal the role VaR tools played in risk management and financial crisis. In the empirical part of this paper, we built up direct estimation model, GARCH model and TGARCH model from simple to complexity. With continuous improvement of the models, enable them to express some of the unique nature of the market, such as volatility clustering, different impact to the market by up and down. In this process, we found that by continuously exploring the law of price fluctuations, we can improve the accuracy of applying VaR method and improve risk management level.To further improve the estimation accuracy, risk is defined as gaps between actual prices of risky assets and investors expect price in this paper. Instead of defined risk as the fluctua-tions of assets prices, this way improves the model's prediction accuracy. By introducing this concept, the volatility of asset prices can be divided into two parts, investor's expected prices fluctuations and gap between asset prices and expected prices.This paper also proposed using the geometric method of moving weighted average va-riance, by using different smoothing factor which makes it also reflects the concentration of market volatility and different market influence of rising and falling. By this method the sim-ple way achieves similar VaR calculation as GARCH, TGARCH model, It's a simple and ef-fective method.Through this analysis, we obtained the following main conclusions:1, VaR method is a measure of risk in normal market, will do nothing in a crisis.2, Through set up VaR models in line with market conditions, the model can improve es-timation accuracy and improve risk management.3, VaR tools can only tips risk, but can not prevent losses from occurring. The only way to prevent a crisis is keep enough reserve.