Research Of China's Interbank Rate Volatility Based On Copula-GARCH VaR Model

With the progress of marketization of interest rates in China, the position of the interbank lending rate as the benchmark interest rate in money market is more secure. Since 2010, interbank lending transactions have increased dramatically, with fluctuations of interbank lending rates being more frequent and volatilities being greatly increasing, therefore, interbank interest rate risk is now more significant.Based on data of overnight interest rates and lending rates for seven days from January, 2010 to December, 2014, we use Copula-GARCH-Va R model to analyze China's interbank interest rate volatility. Firstly, we carry on descriptive statistics analysis as well as stability, correlation and the ARCH effect test. The results show that the data of overnight lending rates and lending for seven days do not obey a normal distribution, and there is an obvious peak thick tail and volatility clustering phenomenon.Then, we select GARCH class models to build the marginal distribution of overnight and seven days lending rates, and find that the GARCH model can effectively eliminate the heteroscedasticity of data, and normal GARCH(1,1) model is suitable for describing the marginal distribution. Then, we use Copula function to depict the correlation structure between the two. Results show that the distribution of the integral transformed data is almost symmetric, and according to the minimization European square distance principle, using t-Copula function is more suitable to describe the peak thick tail characteristics of the distribution.Finally, we calculate 95%Va R value of portfolio of the two by Monte Carlo simulations under t-Copula-GARCH model, and the result is 0.2491. At the same time, we go through Kupiec back-test to evaluate the simulation prediction effect of the model, the test results show that the LR statistic value is less than the corresponding critical value of the chi-square distribution, which means that Copula-GARCH-Va R model is suitable as one of the risk management methods of China's interbank lending rates.