A Research On Risk Measure For Investment Of Shanghai And Shenzhen Stock Markets Based On VaR

Generally, people define risk as the uncertainty of future net gains or the possibility of losses and the uncertainty has many forms. In order to measure the risk more accurately, people introduced the nominal value method, volatility method and sensitivity method. Although the nominal value method, the sensitivity method and the volatility method have played a great role in a certain historic stage, measuring the size of risk of investment or investment portfolio from different perspectives, they don’t make it clear that what the possibility is of the happening of loss. Yet, they don’t put forward a solution to measure the total risk of different markets. Their limitations are obvious in the complicated financial market environment. And just because of this, VaR(Value at Risk) boarded on the history stage of financial risk measure.This paper reviews the impact of U.S. subprime mortgage crisis and European debt crisis in recent years to global economy and uses which as background to lead on to the importance of financial risk management and then carefully summarizes the development condition of risk management technology in home and abroad which shows that the VaR technology has been the focus of scholars of both domestic and foreign. With attention and research of scholars’, VaR technology develops rapidly and is becoming the major technology of risk management.Next, the paper makes a brief introduction of the basic theory of financial risk management and specially introduces the main procedures of risk management of securities investment and then makes it further to describe the evolution of risk management methods. This paper also gives comments to the advantages and disadvantages of every VaR model and analysis of problems probably meet when apply them.Then, this paper takes empirical analysis using statistics of the shenzhen-shanhai300index and GARCH (1,1) model and it turns out that VaR can exactly reflect the volatility of the stock market in Shanghai and Shenzhen and that GARCH (1,1) is suitable for modeling shenzhen-shanghai300index to estimate VaR of Chin’s stock market. With the increasing opening of financial market, the global financial markets are closely linked. However, we still have a long way to go to manage financial risk. In the last of this paper, there shows some prospects of this technology.