Improved VaR Calculation Method Based On Smooth Empirical Likelihood

Since the reform and opening up, China’s economic develops rapidly. Meanwhile,China’s financial market has also been a rapid development. With the financial andeconomic take-off, financial risks have become complex and serious. Nowadays, themarket risk is the most important financial risks. So how to predict and control marketrisk is an important issue facing our country.Value at Risk (VaR) made from the beginning, have academics, financialinstitutions and major financial firms concerned. Today, VaR has become the world’sstandards of supervision and control of financial risks. For my country, using VaR topredict and control market risk is an inevitable choice. However, since the calculation ofVaR is based on the assumption of a normal distribution, It very satisfies nature offinancial data, and China has less history data, so the traditional VaR calculation methodis not suitable for China’s national conditions. Therefore, we use the empiricallikelihood method to improve the traditional method of calculation of VaR, and then getVaR calculation method that is suitable for our country.First, this paper introduces the significance and research status of VaR in theintroduction. Second, this paper systematically introduces the principles and process ofusing of VaR methodology and empirical likelihood method. Finally, this papercombines VaR method and empirical likelihood method innovatively, and establishes anew computing model of VaR With bootstrap method. After comparing the empiricalanalysis, we can see the new empirical likelihood approach, not only does not use thenormal distribution assumption, but also solves our financial problems of less historicaldata. Thus, with respect to the traditional method of calculating VaR, the empiricallikelihood calculation have a certain breakthrough and improvement. For themanagement of financial risk, there is a certain practical significance.