The Risk Management Research Of Social Security Fund Investment In China

At present, the population in China is increasingly confronted with aging problems. On top of which, social security fund in China is suffering from a huge fund gap partly stemming from old governing system. Confronted with bad impact from inflation, social security fund investments have difficulty in keeping fund value. Social security fund is reckoned as a countrywide reserve fund, with a strong social characteristic. Based on this concern, social security fund investments have to be safe as well as profitable. Social security fund holds a increasingly large scale, as its investment tools have been explored. However, it should be generally realized that there exist several concerns with regards to social security fund investments in China. Parts of those concerns are harmful to the safety of social security fund and wellbeing of people. A promising risk management system is essential given the condition that social security fund is an active player in the capital market. Generally speaking, social security fund is facing systematic risks and unsystematic risks. More specifically, social security fund is facing many unique risks. It has triggered much debate over how to manage those risks. VaR model as a most effective risk management tool provides social security fund investments with much protection. Therefore, the dissertation gives social security fund a way to manage risks with VaR model. Especially when Chinese market encountered financial crisis and European sovereign debt crisis, it’s important for social security fund to establish a risk management system based on effective quantitative models.The dissertation includes three parts:the foreword, the body and the conclusion.The foreword introduces the background on the research and summarizes the research results concerning the social security fund risk management and VaR model from both domestic and foreign perspectives.The body involves five chapters:Chapter One starts with the history of social security fund investment, and then thoroughly analyzes both general risks and unique risks that the social security fund is confronted with. The general risks involve systematic risks that include market risk, interest risk, inflation risk and political risk as well as unsystematic risks that include operational risk, liquidity risk, credit risk and business risk. The unique risks refer to the social security fund investment risk and principal-agent risk. Still, in this chapter the present condition of social security fund in China and its risk management have been stated. Chapter Two is about VaR model and its computing approaches. VaR is a threshold value such that the probability that the mark-to-market loss on the portfolio or asset over the given time horizon exceeds this value is the given confidence level. The computing approaches of VaR model can be classified as Parametric Approaches for VaR and Nonparametric Approaches for VaR. In this chapter both advantages and disadvantages of those two approaches are compared. As studied, VaR can also be developed to component VaR, marginal VaR and incremental VaR. All those factors contribute to social security fund risk management. Chapter Three discusses about why the VaR model can be applied to social security fund risk management. What’s more, under new circumstance such that financial crisis and European sovereign debt crisis stroke has the application of VaR model to social security fund risk management been posed new limitations. Chapter Four and Five are the main points of the dissertation. Specifically, Chapter Four is about the application of VaR model to social security fund risk management. VaR model does well in addressing social security fund market risk. Its development can be conducted in investment performance analysis, asset and liability management. Chapter Five is concerning suggestions that come up with to address the drawbacks to the present social security fund risk management from the macro and micro level.The conclusion summarizes the research results of the dissertation.The innovations of the dissertation are stated as follows:First, the dissertation gives a thorough research on the feasibility that VaR model can be applied to social security fund risk management. And also, the new limitations and challenges of VaR model are considered given that recent financial event stroke. Second, the applications of VaR to social security fund risk management are explored to a deeper extend. Third, the dissertation sets examples with regard to each application as a complementary explanation approach.The main drawback of the dissertation is that the models of social security fund risk management are not tested by real data. Thus, the practice of VaR model used to social security fund risk management is restricted.