Risk Measurement And Application For Portfolio Of Floating Exchange Rates For Foreign-related Enterprises

Since July21in2005, China has carried out a managed regime for floating exchange rate, which based on market supply and demand with reference to a basket of currencies, thus market opening is ever deepening thereafter. With the accelerated economic globalization, international trade has become increasingly frequent, foreign investment company such as commercial banks, securities companies, fund companies and foreign trade enterprises are inevitably faced with foreign exchange risks, so under the opportunity of the improving and developing system in RMB, while developing the enterprises, how can we control and manage the foreign exchange risk effectively? This is a worthy problem which investors and regulatory authorities should think about.In the process of enterprise risk management, effective measurement of the risks is the premise of preventing and controlling risks. Foreign exchange risk is one of the primary risks that foreign companies face in the course of business, so measuring the risk of foreign exchanges benefits foreign companies for risk prevention and control in advance.In previous studies of financial risks, the risk of a single asset investment can be obtained directly from the definition of VaR (Value at Risk). Because there is considerable investment risks in the stock market, in order to pursue higher expected rate of return at the same time to avoid risks, investors tend not only to invest in an asset, but a multiple variety of assets to form a portfolio. As a result, the risk measurement of portfolio has both theoretical and practical significances.In order to measure the risk for the portfolio of floating exchange rates, this paper adopts the GJR-EVT-SJC-Copula model to calculate the value of VaR.On one hand, the paper tends to choose GJR model to portray conditional heteroskedasticity, volatility clustering and leverage effects of the return serials of foreign exchange rate more accurately. In consideration of the limitations of the traditional assumptions of normal distribution and extreme risks caused by extreme decline of financial asset prices, this paper introduces extreme value theory (EVT) to compensate for the GARCH’s underestimation of the heavy tail and analyze the extreme risk which investors cannot tolerate;On the other hand, Copula theory which Embrocates built to manage a portfolio of financial risk to describe the nonlinear correlation between the rates, can get rid of the restriction of marginal distribution, reflecting the correlation between exchanges more accurately.In summary, this paper is based on GJR-EVT-SJC-Copula model to measure the risk for portfolio of floating exchange rates for foreign companies. From the perspective of risk measurement after the reform of the RMB exchange rate regime and in consideration of the extreme risks, this paper combines the international risk management methods with the actual situation of China’s RMB exchange rate system, so as to seek an exchange rate portfolio risk measurement model which is in line with China’s economic situation. The study found that:①compared with the other three Archimedean Copula, SJC-Copula portray the correlation of the tail better, while time-varying SJC-Copula performs better than SJC-Copula;②compared with a model without considering the extreme tail, GJR-EVT-SJC-Copula model can measure the portfolio risk of foreign exchange rate enterprises faced better and at a high level of confidence in the performance better, all of which give expression to the theoretical and practical significance of risk measurement for portfolio of floating exchange rates, and provide a reference for investment decisions:①use of portfolio theory flexiblely, innovate investment portfolio to avoid the risk;②use the methord from abroad for reference reasonable, measure the exchange rate risk realistic;③combined with knowledge of management, foreign companies can take proactive management measures to protection against exchange rate risk comprehensively, which can help foreign companies to manage and control foreign exchange risk effectively.That is the application of the model.