Dynamic Risk Budgeting Of Securities Firms

The international financial crisis highlights the importance of risk management, investment banking, and lead to the academic community with substantive departments on risk management techniques more attention. In this paper, the domestic securities firms as the research object, in the risk management process forward, based on the framework of modern portfolio theory was constructed based on the current stage of China's securities companies is suitable for dynamic risk budgeting model and, through Monte Carlo simulations to verify the model operational. Simulation results show that dynamic risk budget will enable investment institutions in the context of acceptable risk to achieve higher returns through portfolio building and locked before the adjustment constant risk, dynamic risk budget can ensure that institutional investors take on additional risk without preconditions improve the return on assets.Full-text is divided into six chapters:The first chapter as the full text of theoretical preparation introduced the budget proposal of the concept of risk and the development of the theory, detailed comparison of risk budgeting and asset allocation differences and connections, and on this based on the dynamic risk budget ideas. "Risk budget" is based on investment programs in risk-adjusted returns to be achieved by the characteristics of pre-set level of risk can bear, and then in the investment process, in accordance with market changes, the budget of different investment opportunities, asset classes or risk factors, so that the level of risk always maintained at an acceptable range, and obtain maximum benefit process. It broke through the limitations of traditional risk management, risk management and investment no longer the process of separating, and in the traditional asset allocation based on greater attention to the risk of real-time quantitative and configuration. The built in this paper dynamic risk budgeting approach is based on the risk budget, risk management and investment process of a new method of dynamic integration. Chapter II risk characteristics from the securities business to start to explore the securities firms face different risks, and how to manage these risks. By analyzing China's securities firms in the form of exposure, this paper presents an inherent risk management needs; by answering "why securities companies need to set up a risk budget?" And "why need to constantly adjust the risk budget?" Two problems, analyze the establishment of dynamic the need for risk budget. The securities company's business is divided into three levels:the origin of business, innovation and business and risk business, which business includes investment banking origin of traditional brokerage services and underwriting business, innovation and business including asset management business and other securities business, the risk that the use of self-service the availability of funds to carry out self-service. As China's financial markets and financial institutions, the continuous development and innovation, the securities company's strategic asset allocation decision-making capacity needs to be improved.Chapter III deals with securities regulatory policy and internal risk management relations. Combination of risk budgeting theory, this paper discusses the risk budget and net capital of securities companies, venture capital relations. Intuitive sense, the securities companies should be based on their actual situation, and actively learn from advanced international experience in risk management, the introduction and development of effective risk management tool, and gradually establish and improve risk identification, measurement and monitoring procedures to enable risk management into scientific.The fourth chapter in the existing risk-budgeting model, based on this paper, the introduction of the portfolio model portfolio insurance idea for the risk the basic method of dynamic adjustment of the budget provides a theoretical basis. Dynamic risk budgeting techniques in real time according to changes in asset risk changes in the protective put option (this option is a certain amount of risky assets and risk-free assets, made copies of) the exercise price, that is, by simply adjusting the way the original asset size risk hedging. Through simulation analysis and found that dynamic risk budgeting approach can cover a combination of the established risk of default probability, as opposed to the traditional asset allocation approach not only reduces the risk of capital, and improve return on capital employed. Chapter V the securities company as a whole as the object of study, examining the introduction of-protective put options on the dynamic risk budgeting model to the securities company's business development and the impact of asset allocation. Evidence shows that the risk of dynamic risk budgeting can improve the return on capital employed within the framework of tolerance, the release of more liquid assets, lower net capital rules and capital adequacy pressures. The traditional asset allocation as the base, dynamic risk budgeting techniques not only improve the business risk-adjusted rate of return, help to improve operational risk control within the department's enthusiasm, but also improved the flexibility to adjust the scale of business.Chapter VI Conclusion:Dynamic risk budgeting model of how efficient the investment in risk management, and by implication, the protective put options would be acceptable within the scope of risk management, and greatly improved the portfolio value, has a certain theoretical and practical significance. This paper argues that risk management is not intended to minimize the risk in order to achieve, but to the most efficient use of risk, so take the risk per unit of access to adequate compensation, a variety of sources of risk through continuous monitoring to ensure that their risk match the level of expected return. Dynamic risk budgeting techniques by eliminating unwanted combination of commitment to risk, more risk information on the budget allocated to higher rates of investment strategies, and continuous monitoring of a variety of investment strategies so that the expected return and risk budgets to match, so that portfolio investment efficiency is improved.The innovation of this paper is that by constructing dynamic risk budgeting model, forward-looking approach to risk management to adjust sublimation from a static to dynamic adjustment. By changing the put option (this option is a certain amount of risky assets and risk-free assets, made copies of) the exercise price, the risk budget to be adjusted. Dynamic risk budgeting approach can cover a certain probability of default under the portfolio risk, not only reduces the capital requirements also reduce the cost of capital.In summary, this paper, the securities company's risk management as the research object, research dynamic risk budgeting techniques to improve return on capital employed, continuing to meet the net capital rules, capital adequacy regulatory requirements of the positive impact. Study found that dynamic risk budgeting can not only improve the return on capital, lower capital requirements, but also can increase the level of liquidity of securities companies, securities companies to improve the dynamic net capital adjustment mechanism.This question needs further study, the risk budget, although the theory has made considerable progress, but the analysis of different issues does not exist a unified framework, nor a measure of risk budget performance indicator system specification, which makes application to a large extent on has been limited to the indicators for further research is valuable, and look forward to the opportunity to continue research in this area.