Risk Value Measurement Of RMB Exchange Rate Under New Round Of Exchange Rate Reform

Since China announced the introduction of a managed floating exchange rateregime with reference to a basket of currencies on July21,2005, the nominalexchange rate of the RMB against the U.S. dollar has shown a feature of slight,gradual appreciation. Till July2008, the appreciation of the nominal exchange rate ismore than16%. The RMB exchange rate reform started again in June2010. OnDecember28,2011, the mid price of the RMB against the U.S. dollar is reported6.3146, another new high since the exchange rate reform. The RMB exchange rateshows a two-way fluctuation and the exchange rate volatility is further increased. OnApril14,2012, the People’s Bank of China officially announced that the fluctuationrange of the RMB against the U.S. dollar trading price would expand to10%in theInter-bank spot foreign exchange market since April16,2012, which willundoubtedly increase the difficulty of China’s foreign exchange risk management.Therefore, an accurate measure of China’s exchange rate risk becomes one of themost important issues in China’s exchange rate risk management. TheBayesian-Volatility-Threshold combination models are adopted. Several typicalGARCH and SV models are used to fit the RMB exchange rate fluctuations in thispaper. We adopt MCMC simulation methods to estimate the parameters, and extractresidual terms to set the POT model to calculate the VaR and CVaR value. In order toovercome the partialty of using single model to estimate the risk of fluctuations in theRMB exchange rate value and reduce the problem of estimation error of thetraditional method of parameter estimation when the data are low frequency high lossand small sample. The results show that the combination model can more accuratelydescribe the US dollar to RMB yuan exchange rate risk, SV-POT model is superior tothe GARCH-POT model, and SV-M-POT model is the best. The modification indicesCVaR value calculated will help us to get a more accurate measure.