Method Of Var In Shanghai And Shenzhen Stock Market Risk Measurement

VaR technique is a new risk management method that has been developed in 1990's. As a quantitative model to measure and control financial risk, compared with traditional models, it is easy to understand and apply so as to have more practical significance.It has only more than ten years since the stock market of China came into being. Compared with the more complete developed countries' stock market, it is in the earlier developing period, also in the complicated and mercurial risk environment. In additional, since China has joined WTO in 2001, its securities business will be open to foreign investors in a short time. So it is an important and urgent task to pay attention to risk management and controlling.Nowadays, we can use a lot of models to estimate VaR, but different model often deduces different VaR value. So it is difficult to find appropriate methods to manage the risk of China stock market. This paper analyzes the accuracy of different evaluate method by combined theoretical analysis and empirical analysis together.This paper compares three typical models of variance-covariance methods, and analyze the accuracy of different evaluate method with certain distribution and confidence degrees. We evaluate VaR with GARCH, EGARCH and TARCH models and assume certain distribution, such as normal distribution, Student-t distribution and generalized error distribution (GED), 9 methods in all. We compare the estimations of VaR in an application to daily returns on the Shanghai 180 index and Shenzhen Component index.There are two tests methods to evaluate the accuracy of the VaR model in this paper. One is Christoffersen Test, and the other is Loss Function Test.The finding of this paper indicated that the distribution assumption of the return series, Sample data quantity and confidence degree are all have the tremendous effect on the accuracy of the VaR models.