The Empirical Study Of RMB Exchange Rate Risk Measurement Based On VaR Model In China

With the newly reform of RMB exchange rate forming mechanism on 21, July 2005 and a series of corresponding reform measures in the exchange market, RMB exchange rate is inclined to market-oriented and fluctuates more and more frequently. So RMB exchange rate risk appears increasingly apparent, which a variety of economic bodies including trade and investment bodies involved in foreign affairs, commercial banks and central bank and so on are subject to. Under the background, how to strengthen the management of RMB exchange rate risk has been an important task that the economic bodies are faced with, while the core and premise of the task is to realize the effective measurement of RMB exchange rate risk.Nowadays, VaR (Value at risk) has become the most popular risk measurement tool in the world. Research on VaR in other counties has developed relatively maturely and VaR. has being the standard measurement that many kinds of banks and non-bank financial institutions use to quantify market risk. Compared with intemational advanced level, however, domestic institutions lag far behind as for the applying of VaR. In order to improve the standard of exchange rate risk measurement based on VaR, the paper first analyses the applicable assumption of VaR model. By the random test, normal test and heteroscedasticity test of the geometric retum rate of RMB exchange rate, the paper proves that VaR model is suitable to measure the RMB exchange rate risk. Then the paper use the nonparametric methods (including historical simulation and the Monte Carlo simulation) and the parametric methods (including variance-eovariance methodand GARCH model with different distributions) respectively to estimate VaR. By the accuracy test, the paper finds that GARCH-t model is the best performer to measure present RMB exchange rate risk, which further shows that RMB exchange rate volatility betrays tine-changing and non-normal. Last, the paper draws the conclusion based upon empirical application and brings forward four policy suggestions respectively from management conception, personnel equipment, method choice and result application on how to establish the exchange rate risk measurement system based on VaR criterion.