The Market Risk Management Research Of China City Commercial Bank Based On VaR

Our long-standing practice of the planned economy keep the interest rates and the exchange rate in a stable level, result that most of the commercial banks do not pay enough attention to market risk.With the financial reform process forward, market risks which Chinese commercial bank faced will increase gradually. Compared with state-owned banks and joint-stock commercial banks, city commercial banks have smaller scale, less resources and more immature corporate governance. They lack of awareness of their risk management, fall behind in risk management methods and did’t have enough capability to cope with an increasing level of market risk with thier management system. In order to better deal with the fierce competition in the industry, city commercial banks is necessary to learn the advanced international experience, enhance market risk management awareness, and adopt more advanced and comprehensive market risk management methods.VaR models are anadvanced market risk management model which have been applied for several decades in the Western countries, but they haven’t been effectively promoted due to the late start of our country’s theoretical study and practical work. Adjusting the measurement methods and management philosophy of market risk and building up more efficient and comprehensive risk management system based on VaR models can significantly enhance the city commercial bank’s risk management level, which will achieve the goals of meeting with the Basel Ⅱ requirements and international practice. Therefore the research and the introduction of VaR models in managing the market risk of city commercial banks has important significance.From a theoretical point of market risk of the commercial bank,this article firstly proposes the significance of market risk management research of the city commercial banks in the first chapter, and sums up the results of previous studies. Then in the second chapter the article introduces the current development of city commercial banks, and discusses the current stage of city commercial bank’s market risks situation. The third chapter analyzes the problems that exist in the market risk management of city commercial banks and their causes. They can be summarized as inutility of the econometric models which don’t meet the current needs, weakness of the management awareness, imperfection of the organizational structure,backward in information systems,lack of talent and imperfect external environment. Based on the central parity data of U.S. dollar against the yuan which announced by China’s Administration of Foreign Exchange,the article makes an empirical analysis of the market risk levels faced by city commercial banks in the fourth chapter with the application of VaR models and GARCH algorithm,and the empirical results passed the KuPiec test. Finally, in Chapter five the article put forward the suggestions to improve city commercial bank’s market risk management system in five areas listed as the measurement system, management philosophy, organizational structure, information systems and personnel training.