Improve VaR Based On GJR Model

Finance is the core of modern economy, financial markets are the arteries of the market economy system. Because of the high-risk of finance and the domino effect of financial crisis, a safe, efficient and stable financial system is essential.Since the1970s, economic globalization, deregulation wave and financial liberalization, development of information technology, financial innovation and other factors have led to profound changes in global financial markets. Financial risk has become more and more complex, which has been a serious threat to a country’s economy as well as global economy. As a result, financial risk management theory based the modern financial theory and financial engineering has become a research focus in the financial institutions, market regulators and academics.Quantitative analysis and assessment of risk is the basis and core of financial risk management. The potential risks of any investment product must be quantified reasonably, in order to enable investors to determine whether the product is consistent with their risk preferences. In today’s financial market, risk measures include for methods:Notional-amount approach, factor-sensitivity measures, risk measures based on loss distribution and stress testing. All these methods have advantages and disadvantages in practice. The risk measures based on the loss distribution is the mainstream of the current financial market risk measurement, including the variance, standard deviation, VaR, conditional VaR.VaR, Value-at-Risk, is the mainstream method for risk management and regulatory in the financial market. It has been used to measure the possible loss of a portfolio or a financial asset with a given duration and confidence level. VaR, based on the probability and statistics theory, can precisely measure the financial assets or portfolio risk and overcome the disadvantages of the current risk measurement methods used only as the special financial tools or in the certain areas. Some institutions, such as G-30and BIS, have recommended VaR as the most powerful market risk measurement method.Compared to traditional risk measurement tool, Value at Risk has lots of advantages:VaR can measure the overall risk exposure of the different business units and complex securities portfolio which include different market factors and different financial tools; The concept of VaR is sample, for a given confidence level, VaR is maximum loss of a investment portfolio in future, which can be intuitively understand by market participants and regulators; VaR can fully take the correlation between different asset prices into account, which can reflect the portfolio decentralized to reduce risks; VaR is suitable for regulatory.The researches on the VaR methodology include the following aspects:How to accurately portray the asymmetric and fat tail characteristics of the loss distribution in order to improve the efficient of a VaR model; How to select a suitable estimation method, because empirical studies have shown that different VaR estimation methods led to the risk difference; How to assess the VaR model is the key to risk management; How to improve the VaR measures and look for alternative methods is current research focus, because VaR is not a coherent risk measure.