The Analyses Of Financial Market Risk Measurement Based On Bayesian Statistics

In the past few years, the globalization of financial service industry and thepromotion of the interest rate liberation have been blending the functions of banks andsecurities, enlarging the market size, complicating the financial risk structure andarousing difficulties of measuring market risks. The difficulties are intensified offinancial agencies managing risks by financial creation. Therefore, significant in boththeory and reality to the development of financial service industry is how to make fulluse of available information to measure the financial risks, and then to make an effectivecontrol and management of financial risks.Risk management is a process, in which the risks are identified, measured andpredicted, and arranged in the order of priority, and is aimed to minimize the unfavorableeffect in the way of adapting and applying the resources, make proper supervision andmanagement, and avoid the risks. Financial risks arises from the uncertainty of financialmarket, and due to the different sources, they are generally classified into the followinggroups: market risks, credit risks, operational risks, liquidity risks and so on.The critical step in the effective control and management of financial risks is how tomeasure the risks. Although the available documents offer to measure risks in manydifferent approaches and models, recent important financial crises have rarely beenforecast in the models available. On the one hand, the intricate causes behind the marketups and downs are not easy to be found, and therefore, the assumptions of the models cannot be met; on the other hand, the undeniable is that any statistic approach or measuringmodel exists some limitations. Hence, it is necessary to explore new and scientificstatistic models to predict and avoid the potential risks. In the above background, thethesis is to explore the model of Bayesian statistics measuring the risks in financialmarket, on the basis of which three kinds of risks are to be analyzed, namely, marketrisks, credit risks, and operational risks, to analyze the causes of the risks in China’sfinancial market, and to advance the suggestions and strategies to avoid and solve therisks.The thesis, composed of four parts, measuring and analyzing the risks in China’sfinancial market, is to study and explore the financial risk-assessing-and-analyzing approaches.In Chapter Two, as the first part of the thesis, a systematic analysis is made aboutthe construction of China’s financial market, the characteristics of diverse risks infinancial market, and the features of yield rate distribution; an interpretation is made thatany yield rate distribution of the three, such as the market risks, the credit risks, and theoperational risks, is characterized by a steep kurtosis and a buffering skewness, butbuffers in a different direction. Besides, the theories are introduced about how to assessthe risks in financial market, and the semi-parameter based on EGACH-VAR andExtreme Value theory are specifically illustrated, which bases the succeeding study.In Chapter Three, as the second part, the Bayesian Hypothesis is advanced to assessrisks in financial market on the base of existing model hypothesis, such as BayesianGARCH-POT model to assess market risks, Bayesian SW-GARCH-POT model to assessoperational risks; the applicability of the model is illustrated from the Bayesian Statisticpoint of view, to offer the quantizing tool for the succeeding risks.In Chapter Four, Chapter Five and Chapter Six, as the third part, the empiricalanalyses of the specific financial market risks are made based on the fundamentaltheories and models, including the analyses of stock market risks by BayesianGARCH-POT model in Chapter4, the analyses of credit risks by BayesianSW-GARCH-POT model in Chapter5, and the analyses of operational risks by BayesianWeibull-pot model. A conclusion come from these analyses that the VaR of the risks ofChina’s stock market is0.0041, of China’s commercial banks is0.056, and of operationalrisks is0,032. The problem is solved of the complexity of the existing model adjustingthe grade of credit and of the loss of data, and meanwhile, the problem of data invalidityis avoided aroused by the traditional measuring approach.In Chapter Seven and Chapter Eight, as the part four, the main causes of the risks ofChina’s financial market are analyzed on the base of empirical results, and the conclusionis drawn that the imperfect market mechanism and policy factors are the main elementsto influence the specific market risks.Methodology:The thesis is to adopt the approach of the combination of theory analysis andempirical test, and the combination of qualitative analysis and quantitative analysis, andespecially focus on the application of Bayesian Statistics. In the theory analysis, the theories of finance, finance-statistics, econometrics and Bayesian Statistics are applied ina comprehensive way. Empirical analysis mainly adopt the Bayesian Statistics, whichovercomes the disadvantage of traditional measuring approach underestimating the risks,and solves the problem of loss of data in measuring the financial risks. The application ofGibbs sampling works out the problem of Bayesian Statistics financial risks in thecomputing process.The analyses made in the thesis are favored by the WinBUGS software,SASsoftware and Eview5.1,6.0software.Innovations:First, Bayesian GARCH-POT model is applied to assess the risks of stock marketfor the first time, perfecting the classic statistics in underestimating the market risks.Second, the empirical analysis made by Bayesian SW-GARCH-POT model ofcommercial banks’ credit risks explores the credit risks. The new attempt is to analyze, inthe form of variables, the credit risks.Third, in the analyses of commercial banks’ operational risks, the results with thechoice of Weibull distribution differs from those with others.The study shows that it is feasible and operational to measure risks by means ofBayesian Statistics of Weibull.Fourth, rarely seen is to apply Bayesian Statistics to the analyses of financial marketrisks, and therefore, the thesis is to offer the choices of approaches to assess risks, which,in a way, better the research conditions of this field.The thesis needs to be improved in the following:First, the shortage of time leads to the fact that the liquidity risks in the financialmarket are not analyzed, which will be further studied in the future research.Second, the empirical study only measures VaR, and the evaluation is not made ofcapital that is used to avoid risks, and this will be perfected in the further study.Third, the difficulty, consisting of the accumulation of the knowledge and thereference to the previous academic study in the choice of empirical distribution, is thefurther study in the future.