On Market Risk Measures For Commercial Bank Via VaR

With China’s accession to the WTO and increase of the economic openness, the financial markets progress towards the development of internationalization, securitization, liberalization and engineering. The contacts among the world have become increasingly close. As a vital member and media to participate in financial markets, the market risk management faced by commercial banks is also very important.Internationally, with the abolition of Q ordinances and regulatory management to commercial banks continuing to relax, financial mixed operation restarts, which leads to the banking sector’s increasingly fierce competition on depositors and business development. In recent years, the frequent occurrence of the financial crisis is the evidence for the aggravation of market risk. In China, with the reform of exchange rate, the establishment of Shibor and the diversification of related investment products,. market-building process of exchange and interest rates are being to accelerate. Meanwhile, this indicates that the market-building process not only provides the efficient pricing of financial products, but also brings new risks for exchange rate and interest rate, which also can yield credit risk and liquidity risk. In other words, the implementation of any policy in the financial markets is a double-edged sword, and how to reasonably use is it up to the managers. Therefore, to choose the appropriate and effective market is a very important question placed on financial risk management. In particular, the Basel Committee advocated a method named by value of risk (VaR) in Basel II agreement. The prominent advantages of this method make it a favor in the West Bank community.Combining with other people’s work, this paper gives the definition of market risk, summarizes the types of market risk and the methods for risk identification, makes analysis of the market risk faced by China’s banking industry and its reasons, and proposes some practical suggestions; Next, we introduces the current risk measure:VaR model principle, and describes the main methods for VaR:historical simulation method, Monte Carlo simulation method, method based on the sensitivity index and method based on GARCH. This article also gives the advantages and disadvantages of these methods; Third, an empirical analysis to the Shanghai Pudong Development Bank is gived. We get the rate of return data for the Shanghai Pudong Development Bank, and verify that the yield data is the stationary series, but it does not follow a normal distribution with a sharp peak and heavy tail features. This paper selected the GARCH-VaR and Monte Carlo simulation to draw the next day’s forecasted VaR. Finally, along with previous work experience, we show the outlook and suggestions. With the development of the internationalization, market risk will attract the attention of the commercial banking sector. The research on VaR, which is the choice of market risk measurement method in Western banking, makes a practical significance for China’s banking sector.