Improvement Research On VaR Model For The Market Risk Based On Historical Simulation Method

The trend of financial innovation and the financial globalization has caused the business activities of modern financial organs to expose to the fierce market risk day by day. It is a series of major domestic and international market risk incidents especially in recent years such as Southeast Asian financial crisis in 1997 and "State Reserve copper" incident in 2006 that make the calculation and control on market risk become one of the important issues for international supervision organizations, governments as well as banks. In the end of 2006, the new Basel Capital Accord has been implemented on a global scale .The China financial market completely open to the outside world. Since then, Chinese Banking industry and other financial organs directly face the competition and challenge of foreign capital banks, and it set a more urgent and strict request to our country's finance supervision work and the market risk management level of banks . Therefore, banks and other financial organs in China should study the foreign advanced market risk theory and technology on calculation and control positively, raise our own market risk management level rapidly, then enhance our strength to, the foreign competitor. This is not only the requests of new Basel Capital Accord and our country's supervision work, but also the inevitably choice responding to the overseas attacks.The purpose of this article is to discuss that how to research and develop independently the particular VaR models for our Banking industry under the framework of new Basel Capital Accord. Firstly, this article introduces and analyzes the foreign advanced VaR methods as a theory foundation of the paper. Secondly, we choose the historical simulations which suits current situation of our country's financial organs for improvements. In view of two big bottlenecks which restrict the efficiency of VaR models: How to get sufficient data and decide the weight on market risk factor of an investment portfolio. We proposed an improved VaR model based on the historical simulations which take day and hour trade data into consideration simultaneously and choose turnover as weight, and then carry on the empirical analysis. The empirical results indicated that this model is more efficiency not only than traditional historical simulations but also than other market risk VaR models. On the one hand, it has simultaneously given dual attention to the market risk and the fluid risk. On the other hand, it has also manifested a basic principle: The balance between capital saves and careful risk management should be realized. This is crucial for both finance Supervisory department and the user of VaR models which is usually the bank.Finally, we give the VaR model of the obstacles in our country's application a detailed analysis, and then propose corresponding countermeasures.