The Spillover Effect Of China's Financial Market System Risk Based On Extreme Value-Copula Model

The outburst frequency of systematic financial risk is increasing with the gradual integration of global financial system.Therefore,the economists have always been focusing on the study of systematic financial risk.With the appearance of various theories of measuring financial risk,the systematic risk has also been subdivided from the whole to the region.Under this circumstance,this paper discusses how to measure the changes of the risk spillover effect when faces with sudden incidents among banking,securities and insurance in China.The effective measurements of systematic financial risk have moved forward from qualitative to quantitative.The concept of VAR(value at risk)is established to measure the financial risk,which was further accomplished and transformed into CAVia R method and Co Va R.‘Co' represents conditional and infectious.The development of the measurement model also shows the aim of the research,which has transferred from single market to the linkage effect between market risks.However,as of processing and depicting the financial time series data,different researcher has different ideas.In this essay,we construct the EGARCH-POT-Copula model to obtain the Co Va R value(Va R)among banking,securities and insurance market,which represents the risk linkage value of one market to others.In the process of using the model,we found the EGARCH model has good fitting effects on describing the asymmetry of yield sequence.Also,we use POT model to examine the tail non normality quality of residuals whose results are pretty good.Thus,the Va R value of three sub-markets can be calculated.Finally,we introduce the Clayton Copula function to measure the Co Va R value between every two markets.This paper is divided into five parts.The background and significance of our topic are described briefly in the first chapter,as well as the development of EGARCH-POT-Copula model.In the second part,this essay expounds the causes of the systemic risk of the three markets from the perspective of theoretical analysis.The common factors include the imperfect policy system and the underdevelopment of the financial market and so on.Meanwhile,the risk transmission mechanism of the market is analyzed theoretically,which includes three channels of direct transmission mechanism and indirect transmission factors.In our third part,the whole EGARCH-POT-Copula model is constructed.The fourth part chooses a ten-year secondary industry data from SHENYIN&WANGUO Inc.to perform and verify our theory.The results are as followings: Firstly,the banking sector ranks first in overflowing risk value of the securities industry,indicating that banking emergency cause the largest influence on the securities industry.Secondly,the securities industry spillover risk of bank value is significantly higher than that of the insurance industry.It shows that there is the strongest risk linkage effect between the bank and securities market.Finally,although spillover risk in the insurance industry on the other two markets is far less than the value of banking industry,it is never too cautious to closely focus on the probable risk,which may appears owing to the activeness of insurance capital these days.In the last chapter,we conclude the recommendations on the risk spillover effect between market regulatory policies: Based on the existence of the risk spillover effect,the premise of the stability of financial markets is to focus on the risk of transmission channels.Which means when one market goes into recession,the other sub financial markets should immediately adjust themselves to minimize the effect to themselves.As for preventing methods,track the systemic risk in important commercial bank is necessary in case of a risk-further-transmission pace when crisis happens.At the same time,we should carry out the mixed operation step by step,strengthen the macro prudential supervision and avoid the systemic financial crisis caused by the increase of the risk spillover effect.To conclude,this paper combines POT model as well as the Copula formula to analysis the spillover effect of systematic risks among financial sub-markets in China.In the same time,we conclude that the systematic risk crisis outburst in one single market will definitely influence other financial markets,and the spillover effect will fasten the velocity of spread.Thus,it is rather important to strength the supervisory of systematic risk so as to keep a steady development pace of financial market.