VaR Method Of Researching The RMB Exchange Rate Risk Based On GARCH Model

Since the implementation of a floating RMB exchange rate regime in2005,the RMB exchange rate fluctuate more frequently. In2010, China further promoted the reform of RMB exchange rate formation mechanism, which enhanced the RMB exchange rate flexibility. With the exchange rate market-oriented reforms progressed, China’s main foreign trade and investment, commercial banks, central banks and other major economic entities faced risk increasingly apparent. In this context, to enhance the RMB exchange rate risk management has become a major economic agents placed in front of a major issue, and its core and the premise is to achieve an effective measure of the RMB exchange rate risk.This paper empirically analysis the variance of the logarithmic rate of return from July25,2005to March22,2013,firstly use GARCH model to calculate the logarithmic yield variance, and then calculate the VaR value, finally test the validity of the model with failure frequency Kupiec test method. Empirical results show that the RMB exchange rate compared to the normal rate of return is more suitable for the t-distribution, logarithmic yields have smooth, there is no serial correlation, but with heteroscedasticity, GARCH model suitable premise; By comparing the model with different order,GARCH(1,1) is the best model;the calculated VaR values can be well reflected in four pairs of sequence numbers yield volatility situation, GARCH model at the95%confidence level through the failure frequency test method.