Risk Measurement Of Commercial Bank Based On Economic Capital

During the risk management process, people often use the loss to describe the risk.in the general case, loss can be divided into three categories, the expected loss, unexpected loss and extreme loss. The expected loss is the loss can be measured on the basis of historical data and predicted in advance, the expected loss is an average loss due to operational risks within a certain period. The bank can predict the risk before the risk occurs, and through product pricing to digest such risk, or by extracting corresponding provision. Expected losses which can be seen that there is no general risk "uncertainty" feature can be used as a routine cost and does not belong to the area of risk management. The unexpected loss can be measured by statistical analysis, and it belongs to deviation of expected loss. It is the unexpected and large loss of commercial bank, such loss cannot be eliminated. Unexpected loss in volume terms is part of VaR more than expected loss. Extreme loss is the loss may pose a threat to the commercial bank liquidity and a great loss of security, from the definition of VaR; extreme loss is the number exceeds certain confidence level of VaR.The Basel Committee and the CBRC regard the economic capital is defined as the capital should be hold in response to the unexpected loss of assets in the future within a certain period. Combined with the definition of economic capital, we can see the economic capital calculation of the individual debt from CaR and unexpected loss, as the three are equivalent relationship. The measurement of overall economic capital contains asset volatility, avail volatility method, the coefficient method. In the end of second chapter there is a comparative table. In this thesis asset volatility method is used to measure overall economic capital.Economic capital for credit risks includes four measure methods:Credit Metrics model, Credit Risk+model, the KMV model and the Credit Portfolio view model. For market risk economic capital, this article describes two measurement methods:the standard method and the internal model approach, in which the internal model approach focuses on VaR and the CVaR. For operational risk economic capital in this article includes three methods:the basic indicator approach, standardized approach, the Advanced Measurement Approach. The third methods includes:internal measurement method, the loss distribution method, the scorecard method.After understanding the economic capital, then can collect data to empirical and case studies, Credit metrics method is adapted. Use risk transfer matrix and the discount rate, can obtained the value of the debt distribution and loss distribution, and then calculate the economic capital; The internal measurement method adapted for market risk basis on the definition of economic capital in this paper, the derivation of this article out of a formula to measure the market risk, then can use loss of strength, loss frequency, and the new parameters to calculate the economic capital.From the measured results in this article:loan portfolio risk economic capital is less than a single loan capital and shows correlation between the loan; the amount of economic capital of the same asset interest rate risk is much larger than the exchange rate risk, so rate risk management should be strengthened; from operational risk economic capital results, the risk of domestic commercial banks are mainly concentrated in the commercial banking and retail banking, so risk manager must pay attention to these two types of business risk management.The end is the structure of this paper. This paper studies the previous measurement methods, then summarize the risk of EC measurement methods. Chapter I Review of the literature of the EC based on the risk category, on this basis, then introduced the various definitions of EC, in determining the boundaries of the EC, this paper raise the concept of the CaR, introduced this concept of the nature of the economic capital and its measurement principle, and The relationship between economic capital and Basel Accord. Chapter Ⅲ summarizes the corresponding economic capital measurement methods. The fourth chapter is case studies and empirical analysis basis on the measurement described in previous. The fifth chapter is the domestic deficiencies of the current economic capital measurement and the corresponding solution. Finally is the part of the concluding phrase.