Equity Investment Risk Management Based On VaR And Escaping Time

Stock investment risk has the following characteristics, its existence is objective and absolute, but subjective and relative; it can’t be completely avoided, but can be controlled. Through the stock investment risk management can lower the possibility of investors suffers huge losses. Recommendations for the 13 th Five-Year Plan for Economic and Social Development emphasize that “we need to improve the state-owned financial capital and foreign exchange reserves management system, establishing a secure and efficient financial infrastructure, effective use and develop financial risk management tools to prevent systemic regional financial risks”. 2016 Government Work Report also pointed out that “we will promote the healthy development of multilevel capital, increase the proportion of direct financing furthermore”, which means there will be more stock investment opportunities, the management of stock risk is also essential. After intensive study, this paper aims to make an overview to VaR and Escaping Time, produce some practical recommendations for investors who want to manage their stock investment risk, and provide a theoretical basis for government to improve the financial risk of the national regulatory system.Currently, the risk management methods are more focused on measure the risk exposure, this paper innovative introduces Escaping Time, the physical statistics that commonly used in statistical physics to risk management, describe the stock price fell to the lowest point from the highest point, and evaluate the trading time risk during stock investment. At the same time, use VaR estimate risk exposures, analyze the risks of stock investment from two different angles, to control the risk more effectively.The first chapter introduces the background and significance of my research. The second chapter describes the definition and factors of the stock investment risk, analysis the necessity of risk management based on the actual condition of our stock market. The third chapter is an overview of the risk management methods I used in this paper. Introduce VaR and Escaping Time from their definition, calculation methods and advantages, propose to apply VaR to Escaping Time. The fourth and fifth chapter is the main part of this paper, its empirical research on VaR and Escaping Time methods. We choose CSI300 and DJIA as samples, analyses the veracity of these commonly used VaR models, parameter setting of Escaping Time and introduce how to use it. The sixth chapter summarizes the research results of previous discussions, and makes some recommendations for investors and government regulators.Through empirical research, leads us to the following conclusion: 1.Apply the three common used VaR methods to China’s stock market still have some limitations. Compare to others, the standard historical simulation is more efficient; 2. When we using Escaping time methods to measure trading time risk, increasing the data window period will reduce the absolute trading time risk and the stability, while increasing the relative trading time risk; 3. Escaping Time calculated by model method shows a good agreement with real data. But with the increase of trading days, the discrepancy between the empirical and theoretical distribution increase; 4.The best stability of relative trading time risk corresponding to an optimal data window period; 5.The impact of trading days making on Escaping Time is complex, we can’t get a best trading time parameter.