A Research On Integrated Risk Management Of Chinese Commercial Bank Based On Copula Method

In the 21st century, with the deepening of financial innovation, commercial banks and other financial institutions have to face the growing financial risks. Commercial banks suffered enormous risks from inadequate risk management. This will trigger the turmoil of financial market, and at last will influence the whole economic environment. In order to maintain the security of financial system, and preventing them from bankruptcy, the Basel committee separated the risks of commercial banks into three parts—market risk, credit risk and operational risk. The committee also clarified that these three risks are influenced with each others, and suggested to use VaR method to measure these risks. The integrated risk management has become an important mechanism of monitoring risks in banks.So far, there is not clearly integrated risk management in Chinese commercial banks. Once the crisis broke out, the bank has to face the loss caused by the risks. The lack of adequacy integrated risk management will lead the bank to increase risk capital, and increase the burden of government. Inadequacy integrated risk management also may lead mistaken measurement. As the growing of financial innovation and the variety of commercial risks, it is necessary to build on an adequacy integrated risk management of commercial banks.The core part of integrated risk management system is integrated risk measurement; reasonable risk measurement method can describe the integrated risk of commercial banks accurately. There are many domestic scholars began to study on integrated risks. But most of these studies are based on market risks, only some scholars studied on credit risk. Because of the inadequacy of financial data, there are limitations of some domestic researches. This thesis combined the methods from abroad with our national conditions, using the Copula function and VaR methods to study on the integrated risk of Chinese commercial banks. This study aims to research the integrated risk of Chinese commercial banks and provide some policy recommendations.This thesis includes six chapters, the first chapter is introduction, the contents from the second chapter to forth chapter are the main parts of this thesis, the sixth chapter summarizes the full text.The first chapter is the introduction. This part introduces the background of integrated risk management. And it also analyzed the shortcoming of risk management in our country, and the necessarily of integrated risk management.The second chapter presents many related literatures, including the literatures aboard and in Chinese.The third chapter analyzes the advantages of using Copula function in integrated risk measurement. And it also studies on the influence factors of Copula-VaR.The forth chapter introduces the main models used in this paper and data sources. This part is separated into three sections:market and credit risk models, operational risk model and integrated risk model with Copula function. The fifth chapter measures the integrated risk of Chinese commercial banks. This chapter included four parts:the marginal distributions of market risk, credit risk and operational risk, and the integrated distribution of the three risks.The sixth chapter summarizes the full text, and points out some further researches.Overall, there are some innovations in this article:First of all, this paper analyzes the advantages of using Copula function in financial risk management.Secondly, it used the public available data to research risks of Chinese commercial banks. This method can be used in other financial institutions for further studies.Finally, this paper used Copula function to integrated risk. So that it would be more accurate than traditional method.The follow-up studies and continue researches would focus in the improvement of the precision. These include the researches on credit risk based on more accurate spread factors and operational risk research on Chinese data. And the further research also includes using the multilateral Copula functions for integrated studies.