Risk Spillover Effects Research Of International Petroleum Market To The RMB Exchange Rate Market, Which Based On VaR-GARCH Model And Quantile Regression

In recent years, under the help of financial globalization international politicaland economic stage is more and more complicated. Meanwhile considering theviolent changes of the international oil price in international oil market, theinternational oil market risk management has become the focus of global attention. Asone of the most original impetus, oil is the most basic guarantee of modern socialadvancement and operation. And exchange rate is another focus of concern for theinternational community. Just like international oil price, exchange rate is also animportant factor in the economic development of all countries. As a kind of basicenergy commodity, the changes of the international oil price have an importantinfluence on the economic development all around the world. To some extent, it alsodetermines the change of exchange rate.Since the reform and opening up, China’s economic development level isenhanced obviously and people’s living is also improved. Behind these socialphenomena there is a cruel reality that our country’s demand for oil is rising. In recentyears, China’s oil demand almost has been growing at double-digit annual rate. Ourcountry has become one of the countries whose demand for oil is the largest in theworld. After a lot of oil is imported by spending a lot of foreign exchange reserves,the high proportion of import dependency will cause the hidden danger for ourcountry’s oil security in the future. In such an adverse situation, our country doesn’tpossess the international oil pricing power. However, oil in the Middle East is themost important source of oil in our country, and the conflict in the Middle East oftenleads to a result that oil is volatile. Our country’s economic development and financialstability will be affected by the international oil volatility on the market. Mostobviously when oil is imported with foreign exchange, international oil pricefluctuations will cause corresponding risk spillover effect for the RMB exchange ratemarket. Therefore, it has important research value how international oil fluctuationsimpact the RMB exchange rate market.In recent years, because the international oil market shows its financial attributes,it has become one of the themes of the academia to measure the international oil pricerisk by using financial methods. Financial risk is often generated due to volatile pricesof financial assets. Therefore, if you can more accurately measure the asset pricevolatility, people can estimate potential risk of assets or portfolio. Using GARCH models can measure the asset price volatility better, which set a foundation foraccurate measurement of financial risk.As the risk of a new measurement method, VaR method has many goodAdvantages, such as method intuitive, quantitative results and conclusions tounderstand. When compared with the traditional risk measurement methods, whichare scene simulation, pressure test method and the sensitivity method, it is morepopular with risk managers and gets the favour of many scholars. As the VaR model isimproved ceaselessly, its application in financial risk management is more and morewidely. At the same time, it conforms to the centralization and quantification of therisk management requirements for the financial institutions and academia.Considering the advantages of the GARCH model and the VaR and CoVaRmethod, it is a new research idea that the international oil price risk is measured byusing financial methods.This paper introduces about the research status at home and abroad anddevelopment trend firstly. Secondly, it elaborates the related theory of the oil marketrisk management. Thirdly, it tells the GARCH model and the basic principle of theVaR and CoVaR model. The last is the empirical analysis which is the core part of thepaper.In the empirical part, the paper analyses the statistical characteristics (value ofskewness, kurtosis, JB, etc) of the logarithm yield for the Brent oil market and WTIoil market firstly. Then it discovers that the logarithm yield sequence of two marketshave some features, such as obvious peak and fat tail, the correlation and the ARCHeffect. So we can use GARCH model to do empirical analysis for both markets.Secondly, the paper assumes that after the distribution of the partial t distribution, weuse GARCH model to describe the oil price fluctuations of the Brent oil market andWTI oil market, estimate parameters of the various GARCH model, reach thecorresponding volatility. Thirdly, after getting the volatility of both Brent oil marketand WTI oil market by using GARCH model, we calculate the value-at-risk ofresidual sequence of two logarithm yield by means of nonparametric method. Thenwe calculate value-at-risk of both two oil markets before conducting back testing andpredicting the future risk. Finally, in order to improve the accuracy of parameterestimation and pay attention to the influence in the upper tails and lower tails for theParameter distributions, we use the quantile regression method to calculate thecondition value-at-risk that the international oil market has an affect on the RMB exchange rate market and the corresponding risk overflow in view of obvious peakand fat tail, heteroscedasticity and volatility integration for the actual yield of two oilmarkets.