Research On Financial Risk Measurement And Its Application

In recent years, due to the globalization of economy, the liberalization of finance,competitionand deregulation, financial innovation and technological progress and so on,the scale of financialmarket has rapidly enlarged and the efficiency of it significantly has improved too. At the sametime,the volatility and risk of the market has increased largely. When it is serious，it can cause thebankrupt of the financial institutions. Even worse, one country will break down and global economycrisis will break out. Just as the global financial crisis which occurred in2007. This crisis which isbeginning with the form as the Subprime crisis in America spreads fast to the rest part of the world.Therefore, for financial institutions and investors, risk management and economic capitalmanagement is particularly important, is a magic weapon for the stable development of the financialmarkets, the core of risk management and economic capital management is the financial riskmeasurement. This paper focuses on the existing financial risk measure method of theoretical andempirical research.In the theory part,This paper introduces three axiomatic standards of the existing financial riskmeasures（coherent measure of risk、convext measure of risk、dynamic measure of risk）and sixfinancial risk measures, the historic VaR measure、CVaR measure、ES measure、entropy measure、residual entropy measure、spectral risk measure.This paper expounds the method of calculation ofthe financial risk measures detailedly. I evaluate the advantages and disadvantages of the financialrisk measures objectively.On that basis, I will do the empirical research.The empirical research part consists of two aspects. The first,as the current financialinstitutions not only have to financial risk measurement,but also need provision for economiccapital of these risks. Thus the empirical research of this paper will focus on how to do economiccapital measurement. The second, the Basel III reiterated the importance of the ordinary shares, sothis paper measures the risk of its own ordinary shares of banks in the empirical measurement, inorder to clear the value of the ordinary shares.firstly,the paper analyses the statistical characteristicsand distribution.Secondly the paper does provision for economic capital of the return series byusing the appropriate method based on the different financial risk measures.thirdly,comparing theseresults and making the conclusion.CVaR measure is better than VaR measure on measuring tail risk.but the rights of each lossweight are the same, it doesnot meet the Reality.spectral risk measure gives different loss differentweights, and considers the investors’ risk aversion,so it is a more appropriate measure of risk in financial markets. Entropy Risk measure only consider the uncertainty of the financial risk,butdoesnot consider the extent of the loss. Relatively speaking, Entropy Risk measure is lessapplicability in the actual financial market, but provides a better angle for measuring uncertaintysuperior variance.