The ES Measurement Of Risk Of Stock Index Futures Market In China

Nowadays, China’s stock market and the futures market are in the process of developing, due to the construction of a variety of systems is imperfect, and the market’s speculative atmosphere is also relatively strong, resulting in the system risk is relatively high compared with Europe and America. Thus, investors urgently need a tool to system of risk aversion. Along with the development of financial liberalization and capital market integration, global capital market has been developed rapidly, in which the main financial derivatives products is share price index futures. Because of the economic development and prosperity in the financial markets, the number and the scale of institutional investors is developing rapidly, which makes the transactions behavior of arbitrage and hedging with stock index futures have become more frequent, in this context, the trading scale of stock index futures is expanding rapidly. In china, because the scale of China’s stock market is also constantly expanding, the number of institutional investors is increasing with each passing day, the market’s requirements for risk management is increasingly urgent. On April16,2010, China’s Financial Futures Exchange officially launched the Shanghai and Shenzhen300stock index futures contracts, along with the continuous development of Chinese stock index futures market, share price index futures market is gradually mature. The listing of stock index futures to make up for the shortcomings of the short mechanism of traditional China’s stock market, it not only provides a tool for risk-averse investors, but also plays a positive role on the value of the investment incentives. However, stock index futures have higher leverage ratios, which exponentially magnify gains at the same time, but also raise the risk. Therefore, at present, how to accurately measure the risk of Chinese stock index futures market has become a very meaningful topic, which provides an effective method for our country’s investors in risk management and risk prevention.For the measure of risk in financial markets, because the VaR method proposed in1993overcomes the limitations of traditional risk measure methods, with the continuous improvement of Value at Risk (VaR), now it has become the most common approach to measure the risk of financial market for the world’s financial institutions and non-financial institutions. But the biggest flaw of VaR is that it relies the rate of return obeys a normal distribution, and it does not take the peak fat tail existing in the time series into account, so it does not satisfy the consistency criteria of risk measuring. However, with respect to VaR, the Expected Shortfall (ES) is a consistent risk measuring method, and it not just relies on the normal distribution. Hence, this paper applies the Expected Shortfall (ES) method to measure the risk existing in China’s stock index futures market.In this paper, based on the characteristics of China’s stock index futures itself with the "leverage effect and inter-temporal nature", which resulting in a higher risk existing in stock index futures market, overview of the theory of stock index futures and risk measurement methods, and introduce the Asymmetric Laplace Distribution and GARCH model, and estimate the parameters based on this Distribution, and the calculation formula of ES approach based on GARCH model. In the part of empirical research, select our stock index futures market (Shanghai and Shenzhen300stock index futures)642day’s (excluding holidays) closing price as original data from April16,2010to December4,2012, and choose the log daily yield rate as the index. First of all, analyze the data distribution of daily return series, and the analysis shows that:the daily return sequences of Chinese stock index futures with an obvious "the peak thick tail", the left side, volatility clustering and other characteristics; Secondly, test of ARCH effect on the sequence of residual, and use GARCH model to fit the residual of series; Then, put the volatility calculated from GARCH model into the calculation formulas of ES, so as to measure the risk of our stock index futures market; Finally, test the validity of ES method, and further draw a conclusion of this article: ES method can very accurately measure the risk of stock index futures market in China. According to the conclusion of this paper, put forward the related applications prospect for ES method measuring the risk of our stock index futures market.