Research On Measurement And Economical Capital Allocation On Market Risk Of Commercial Banks

As the extent of the liberalization of financial markets and the expansion of the banking industry, the relations between the financial market becomed more closely, and the transmission of the market risk of financial market becomed more quickly. With the increasing development of financial markets and the innovation of the financial derivatives are bound to bring more and more market risk and market risk of further transfer or even enlarge, resulting in the enormous potential loss of investors caused by the price fluctuations of financial market products. From the closure of the Bahraini Bank, the huge trading losses of Japanese Dahe securities and the massive loss of the Sumitomo Bank, to the outbreak of the credit crisis in 2007, the subsequent bankruptions or being purchased of American five major investment banks and the world-wide economic crisis, all of these impact on the smooth functioning of the financial world completely or partially and make a threat to the sustained and health's economic development , at the same time they all illustrate the huge destroy of the marketable risks. With the innovation of financial (derivative) products and the increase of its trading volume, the marketable risk will increase as the price changes, therefore how to accurately calculate and effectively control the marketable risks of the financial institutions, especially the commercial banks has an extremely practical significance.In this paper I want to build the marketable risk measurement models of our country's commercial banks,beased on which I try to research the economical capital.I hope to buffer the impact of the commercial banks and reduce the possibility of bankruptcy which caused by marketable risk. The theoretical basis of this paper is the VaR model which measures the marketable risk and the principles of economic capital allocation. The first chapter introduces the background and significance of this study and the related literatures of risk measurement of its domestic and foreign market&the allocation of economic capitals. The second part is about the theories and methods of the market risk measurement and the economic capital allocation; The third part I use the theory of the VaR model and the method to measure the risk of exchange rate, equity risk and Interest rate risk, then I make analysis on how to configure the economic capital. The fourth part is conclusions and recommendations of this paper. The empirical research of this paper shows that the market risk measurement of the VaR model is also suitable for Chinese commercial banks, market risk measurement, and GARCH (1,1) model will measure the risk of exchange rate more effectively,however,as the fluctuation of Chinese stock market is too big ,it will bring huge losses to the commercial banks,so the commercial banks are advised to hold as little stock assets as possible.