VaR Technique And Its Application In The Stock Market Of China

Every investor has to face with the financial risk,which is also the key problem related to the development of countries'economy, especially in the financial institutions. Financial risk has directly influenced the economic activities,which has also influenced the macroeconomic decisions and economy development. How to control the financial risk has become a focus of every financial institution and investors. So far,VaR is one of the most popular financial risk management methods in the international financial market.VaR is a new risk management instrument after 1990s. As a model of risk measurement and control,it is easy to operate. Compared with the traditional risk management,VaR model is more practical and referential significance. At present,VaR technique has become one of the main methods to measure market risk,assess achievement and expose information in the world.However, most of domestic financial institutions have applied traditional risk management models,such as Assent-Liability Management,the Capital Asset Pricing Model etc. Though,the sign indicates that some institution investors have applied VaR technique,none of them exposes VaR information of their holding assets.Being one of the components of the whole financial markets,the severe volatility and large transaction volume of stock market makes itself be a leading role in financial market. Compared with the stock market in the developed countries,China stock market is just at start. And China stock market's risk management and control is essential for its development. It is necessary to introduce a new risk management system.Firstly,the article has introduced the main financial risk existing in our stock market, and mainly introduced the definition,theory and calculation method of the VaR system, and have a comparison of each calculation method. After that,I have a focus on the GARCH model and its estimation methods. In order to calculate the VaR,GARCH-VaR model was used to calculate the VaR of specific example of haier stock,and also,it is proved that it is practical to use the VaR technique in the China stock market. Finally,I calculated portfolio VaR. In order to rule out the potential correlation of each return rate of financial assets,I used orthogonal GARCH model,the core idea of which is to use the principal components analysis method to build up variables that have no correlation. It simplified the calculation method,then I did an empirical research on it and arrived to the ideal conclusion.