A Study On Inter-bank Offered Interest Rate Risk Of Chinese Commercial Bank Based On EGARCH Models

Inter-bank lending market is an important way for financial intermediaries,especially commercial banks, to get funds, and inter-bank lending rates has a sensitivereaction for the reform and changes in the market,which oscillation could be used tofind if there is enough money in the market. The measures of cutting the deposit reserveratio and interest rate market-oriented made by the central bank prompted commercialbanks to put more money to invest in market activities, and financial markets havebecome more and more active. With the deepening of reform, the interest is decided bythe financial institutions in the market，and the volume and frequency of trade isaccelerated. As one of the three market-oriented interest rates, inter-bank interest ratevolatility increased, and the risks in terms of lending faced by commercial banks areincreasing..In this paper, Shibor is chosen to represented inter-bank lending interest rates inChina. The paper describe the characteristics of volatility and the measures methods ofcommercial bank lending rates on the EGARCH models picked from the GARCHfamily. As the limitations were removed gradually, the interest has already been decidedby members in the market, which means the market could considered as a Perfectcompetition market, and it is meaningful to describe the interest rates. In the literaturereview on the premise integration and abroad, this paper presents the general idea of thepaper. In terms of the use of theoretical methods, detailed description of the scope andthe advantages and disadvantages of each model, the article explained further arguments.Empirical part, first select the most representative of our interest rate market—Shibor,and then take the overnight lending rate data in June2012as the sample. After thestatistical description, the paper try to build a EGARCH model to describe thecharacteristics of the overnight lending rate volatility. Finally, based on the best way todescribe the characteristics of the market EGARCH model, VaR is calculated andmeasured by back testing the validity of the model.This paper selects the data sequence data interval Shibor market from July2012toSeptember19th2014, and trading volume and transaction frequency are representativeOvernight Shibor for processing. The studying results can be concluded as thefollowing:(1)Earnings volatility and logarithmic rate with Shanghai inter-bank overnight market interest rates combined effect of Shibor.(2)Under the GED distribution conditions, AR (2)-EGARCH (2,1) model can be agood fit between features Shanghai inter-bank market overnight Shibor distribution;while inter Shanghai inter-bank market modeling the resulting coefficient is relativelylarge, indicating a more severe market volatility of inter-bank lending, mainly becauseour country in June2012after the gradual liberalization of controls on lending market.(3)ARMA (1,1)-EGARCH (1,1)-GED model can well describe our OvernightShibor logarithm yields characteristic; daily VaR calculated by the model were filteredthrough LR back testing test, the model is an effective measure of the risk of Shiboryields.Innovation of this paper is threefold: first, the choice of sample data on the interestrate market to abandon the past, incomplete sample, market research data to speed upthe process of interest since, for the present and future interest rate trends and moreresearch value and reference; Second, the paper-based AR (2)-EGARCH (2,1)-GEDmodel to study the data sequence itself, a description of the sequence features a moredirect and accurate; Third, this article will feature overnight Shibor interest ratefluctuations its yield a measure of the risk of a combination of both, a morecomprehensive picture of inter-bank lending market risk characteristics.However, this article in model building and research there is still much to bedesired, the need for further improvement. Firstly, the model selected in financial timeseries constructed in the GARCH model using only a few classical methods, GARCHfamily models may have a more appropriate model; Secondly, the sample selection,since the actual time span the restrictions only selected data from July2012toSeptember2014, the sample size slightly less, consider using Monte Carlo simulation toobtain larger sample; term interest rate structure, only selected larger trading volumeovernight lending rate to study, and not involved in the commercial bank interest rateperiod for all products conduct a comprehensive study; Finally, interest rates are manyways to measure, VaR applications can describe the risk value, but the impact ofextreme events can not be predicted, risk can be considered extreme value theory andmethod of combining existing research, or use other methods to measure CVaR or ESrates.