Research On China Foreign Exchange Portfolio Based On GARCH-POT Model

After the US financial crisis in 2008, all countries began to appear with economic bubbles and asset began to reconfiguration and reshuffle. Under the background of post-financial-crisis era and domestic exchange rate reform period, the research on the risk of the foreign exchange market and ris k measurement of foreign exchange rates seem essential to help domestic investors understand the future situation and looking for new investment direction.Select the middle rate of RMB to US dollars,RMB to EUR,RMB to JYP,RMB to HKD from January 2, 2008 to March 2015 as research subjects.After statistical test,we found that these four sets of data showing the feature of biased estimate,high kurtosis and thin tail.What’s more,these 4 sets of data also have autocorrelation,partial correlation and heteroskedasticity effect,therefore we should establish the GARCH model to study their volatilities.Through the experiments,it is confirmed that GARCH model has worked well on volatilities,but can’t fix the tail fitting problem very well.The extreme value theory is introduced to describe the model residuals based on GARCH model. The Extreme value theory can be a good supplement of GARCH model in describing dots among the residual tail. By the Hill estimation,we can calculate the threshold u in POT model,then estimate t he upper parameters and lower parameters in POT model. Simultaneous POT model and Va R(Value-at-risk), CVa R(Conditional-value-at-risk) risk measure method,we can know the risk value of each exchange rates and can predict the next 30 days’ Va R and CVa R effectively.Build normal-distribution-Copula,t-Copula and time-varying-Copula model to describe joint distribution between the residuals of RMB to US dollars,RMB to EUR, RMB to JYP and RMB to HKD,from a portfolio perspective to measure foreign exchange risk, to calculate the portfolio’s Va R and CVa R. Under the principle of minimize the risk, measure optimal investment proportion for 4 kinds of foreign exchange rates which provide an important basis for investors to make investment decisions.