The Measurement Of Commerical Banks' Integrated Risk And Systemic Risk Based On Copula

The introduction of the Basel III in December 16,2010 aimed at strengthening the supervision of risk both from individual commercial banks and the banking system.Among them,the micro-prudential supervision demanded that the management paradigm of commercial bank risk should shift the previous single model to the integrated risk management which many kinds of risks had coexisted.While macro-prudential supervision sought to reduce the influence that the bank with potential systemic risk had on the whole financial industry,which had played a supporting role on the global financial stability and economic growth.Therefore,this article will analyze the risk management of Commercial Banks from the micro-prudential supervision and macro-prudential supervision.According to Micro-prudential supervision,the first part introduces the Copula function,gives the Copula' definition,parameter estimation methods,inspection methods and simulation algorithm.The Copula function is also known as "link function",which can get the marginal distributions and the correlation of risks together,and provide a theoretical basis to the integration and measurement of risks.Secondly,the article will summarize the basic connotation and measurement methods of the three risks of commercial banks,as well the corresponding empirical analysis of results.Using KMV model to obtain the credit premium,which will be used as an alternative variable for credit risk,yields to the beta distribution.Using GARCH(1,1)-normal model to characterize the fat tail characteristics of financial asset returns,while the market risk yields to the two-stage of log-normal distribution.Using three-factor model of Fama-French to model the regression equation,then make the absolute value of the regression residuals as the alternative variable of operational risk,which shows that the operational risk of commercial banks yields to beta or gamma distribution.Then,using the research results of various risks,and respectively combining the N-VaR,H-VaR,Add-VaR and the Copula-VaR to measure integrated risk.While comparing the results above is that Add-VaR can simply aggregate the different risk,which will overestimate the risk value.N-VaR and H-VaR can assume the distribution of risk,which will underestimate the risk value.However,the measurement of integrated risks based on Copula-VaR and CVaR is the most effective.Finally,this article also gives the diversification effect result based on Copula-VaR method,which shows that the correlation between the risk will affect the diversification effect result if under the same level of confidence,and the larger correlation between the tail of risk,the smaller proportion on the reduction of VaR.When at the different confidence levels,the diversification effect of risk will tend to increase with the increasing confidence level.According to Macro-prudential supervision,this part is based on multivariate normal Copula function,while combining the CoVaR method to measure the systemic risk,then giving the empirical results.Thus,the first part is the connotation of systemic risk and CoVaR.So we use the value at risk of the entire financial system when a particular commercial banks is under the presence of risk to minus the value at risk when the commercial banks is under the normal status,then put the difference between the two as a marginal contribution,which the particular commercial banks make to the entire risk system,as well is used to reflect the level of importance of each bank.What's more,we will give the calculated process that based on the method of multivariate normal Copula-CoVaR and the empirical analysis.What the result is that the large-scale commercial banks,such as the ICBC,CCB,CIB,have a higher risk resilience,as well make the the largest risk contribution to the entire banking system when occurring crisis.Finally,proving recommendations to the risk management of the systemic important banks.