The Theory And Empirical Study In The Securities Business Of VaR And CVaR

Financial risk management has always been an important and the core problems of financial areas, however, risk measurement is the foundation and core of the financial market risk management .With the deepening of globale conomics integration, investment free port and financial innovation, the financial magnate's volatility and risk are also increased. The financial risk management has become the most important question which is the financial policy and the investor are facing.VaR (Value at Risk) is a new method developed in recent years to quantify Market risk,the great popularity that this instrument has achieved is essentially due to its simplicity and practicability, it can reduce the risk associated with any portfolio to just a number, the loss associated to a given probability. Most of the banks, nonfmancial companies have adopted this method to manage their market risk soon after it was invented, in addition to the Basel Commitee, the Bank for International Setlements and other official institutions. In fact, VaR has become the standard method to manage financial risk at present. Research on VaR in otherc ountries is mature and there have been a lot of technological methods proposed since its in troduction.In China the research on it is left relatively behind. With the deepening of Chinese financial sector reform, the domestic financial institutions are to establish risk management systems based on VaR risk measurement as have been done by international institution. This paper is divided into three parts to introduce the theory and empirical study in the securities business of VaR and CVaR.The firs part is the introduction.In the second part,we introduc the basic theory of risk management in financial market.Risk definition and its characteristics are briefly discussed.There are two most important risk measurement methods had been introduced, sensitivitya nalysis and fluctuations method.In the third part, there are theoretical system of VaR and its empirical study. We introduced in detail the meaning of VaR, general calculation method, and on the normal distribution, obey geometric Brownian motion, the VaR calculation of stock and options. Here, we introduce models for VaR computation, especially historical simulation method, analytical method, and Monte Carlo simulation method. It is worth mentioning that the original data should be standarded in order to achieve any substantial impact on the role of profit in the historical simulation method. We computes SSE 180 index dailyeometric return rate VaR with the three methods ,then analysis the results and compare the theree methods.In the fourth part, we introduced the main reason, the basic ideas, and Portfolio Optimization Model of CVaR.We apply CVaR Expert1.3 software to empirical analysis a single and portfolio asset. By comparison the empirical results of VaR and CVaR, We found that because of VaR and CVaR consider issues from different angles, they both have advantages and disadvantages ,So we should combined the results of them in the application in order to avoid risks better.