Based On China's Foreign Exchange Reserve Currency Structure Optimization Analysis Of Var

In the end of June2011, China’s foreign exchange reserves has exceeded three trillion mark, reaching$3.1975trillion, with60%-70%of dollar-denominated assets. High and concentrated of foreign exchange reserves has not only brought huge opportunity cost, but also faces enormous exchange rate risk and credit risk. At present, the domestic scholars have made a thorough research on the moderate scale of foreign exchange reserves. Risk management of foreign exchange reserves, especially the optimization of currency structure, are always of a single track, which lacks some necessary quantitative analysis tools and requires further study in depth. Therefore combining with China’s foreign exchange reserves risk management Practice, using the theories and methods of Markowitz Portfolio, Heller-Knight model, the Dooley model and VaR method, we studied the structural Problems of China’s foreign exchange reserve systematically, Providing strong support for investment decision-making on the foreign exchange reserves.The article mainly consists of four Parts:theoretical basis of foreign exchange structure, the estimation of the composition of foreign reserves, the optimization of currency structure and relevent advice.First, we analyze the basic concept, the role and the management experience of China’s foreign exchange reserves, Describe the theoretical and empirical basis of the optimization of the currency structure of foreign exchange reserve.then, based on the results of previous studies and the data released by International Monetary Fund, World Bank and the U.S. Treasury Department, we estimate the current currency structure of China’s foreign exchange reserves, analyze the causes of current currency structure, as well as the need of optimization the currency structure.In the third part, we bring the portfolio model, Heller-Knight model and Dooley model to the analysis, establish Quadratic programming model that considering the benefits, risks and also other payments functions of foreign exchange reserves, to initially determine the currency structure of China’s foreign exchange reserves. Then, according to the results, we use VaR method to further measure the potfolio risk, identify the major sources of the rish to further optimize the currency structure of foreign exchange reserves.Finally, according to the above analysis, it draws a number of conclusions of China’s foreign exchange reserve management and made several policy recommendations.