Intergration Of Bank's Market And Credit Risk Based On Copula

With financial globalization and the innovation of new financial instruments,the risks of commercial banks shift from a single model to the risks of diversification. The risk management of commercial banks stepped into enterprise risk management. The risks that commercial banks facing not only come from credit risk ,but also from market risk and operational risk. There is co-relation with each other, so it is important to measure the total risk that the commercial banks facing.In this paper, firstly, we analysis the factors such as return of treasury bonds index of shanghai security market,exchange rate of US dollars and return of HS300 index which have impact on market risk ,then choose these factors to our models, and determine the distribution of market risk. We choose return of treasury bonds and enterprise bonds to the model which determines the distribution of credit risk. Secondly, we use copula function to integrate market risk and credit risk. Thirdly, using Monte Carlo simulation , estimate the VaR of integration of market and credit risk. At last , using back-test ,we compared this copula-VaR with traditional VaR using variance-covariance method. In this paper, we use a panel data constituted by China's 12 listed banks to our empirical study, and the results show that, Copula model is superior to the traditional risk measure variance - covariance model.