Analysis Of Correlation Of Foreign Exchange Assets And Risk Measurement VaR

From the beginning of July1,2005, China executed a managed floating exchange rate policy. China’s exchange rate is not pegged to the dollar’s exchange rate policy, and the correlation of the foreign exchange assets using RMB as the middle price has great changed. Especially in the recent years, China’s foreign exchange reserves continued to grow rapidly, with the single construction, and mainly concentrated in dollar assets, so foreign exchange reserve risk also will be highlighted. We can see the risk of exchange rate have great impact on China’s foreign exchange, and it has very realistic significance for our country to research it. Under the background of the foreign policy and the influence of major events on the Chinese and foreign currency, China’s foreign exchange assets correlation becomes very important. Through these correlations of evolution, we can find the features that Chinese foreign exchange movements could show. It can help us to verify the co-movement of international markets and the China’s foreign exchange market strengthens and further maturation. Based on the foreign exchange risk identification, measurement, monitoring and decision making, we can reduce the risk of uncertainty, and ultimately to optimize the allocation of resources in order to reduce the risk.The paper selects the foreign exchange assets of USD, EUR, JPY and GBP during Aug.2006to Aug.2010. We use the foreign exchange assets yield which have1195data as the analysis data.First through the foreign exchange assets value of statistics analysis, we know some basic features of foreign exchange assets data.On the relevance of research process, in view of Copula function has good properties, and can be obtained at different time points of relevance, this paper uses the Copula function as a tool to carry out empirical analysis. With the foreign exchange assets financial return is not in accord with normal distribution and exists spike tail features, the paper selects the GARCH (1,1)-t mode which can describe the financial data with heavy-tailed to describe the foreign exchange assets yield volatility. Then we use the Copula function which can connect the marginal distribution to do the description. With the study we find that in2008October and2010of July the correlation between USA exchange rate of return with EUR, JPY and GBP exchange rate are more or less increased. It proves that in the subprime crisis of the United States, how the correlation coefficient of the evolution processed, and depicts the foreign exchange’s character of changing with time in the current stage of the depreciation of USA and the appreciation of the RMB. We can find that China’s foreign exchange market can make rapid response when the international financial market occurrence of extreme events.In order to construct the t-Copula function test, and measure the foreign exchange assets investment portfolio risk, this paper constructs the t-Copula function based on VaR Monte Carlo simulation algorithm. Statistics the failure of the number of each moment and under the confidence level of95%and99%, then compare the original yield of number theory to see if the value of VaR are in number theory control range. For portfolio selection, the USA and other foreign exchange assets proportion chose (0.9,0.1),(0.8,0.2),......,(0.1,0.9) of the9group portfolio proportion to compare. When the proportion of investment for the (0.9,0.1) or (0.1,0.9), Copula model in the simulation precision is slightly deviation, and the failure rate is higher than the corresponding control interval. In other portfolio the VaR simulation of the failure rate on the confidence interval range, namely the time-varying t-Copula function can well describe the USA and EUR, USA and JPY, USA and GBP time-varying correlation changes. From the nine kinds of investment scale, we can see too much money in USA or in other foreign currency assets can make the failure rate higher. It also shows that if we are doing an investment portfolio, put a greater percentage of one will get a risk bigger, and we should diversify them. We also find that if the USA accounted for the proportion of less case, VaR will be higher with higher yield. So in portfolio selection, more people tend to invest the EUR, JPY and GBP which has appreciation or value trend of assets, while not to choose a single USA assets. Therefore in the foreign exchange assets investment, emphasize low risk or high yield is not desirable, for portfolio selection should be carefully.