The Application Study Of Var In The Risk Measurement Of Domestic Commercial Banks

Commercial bank's risk management has always been an important study in theoretical field and the business community. Especially since the 20th century, 70 years, the world economic and financial environment had experienced the collapse of the Bretton Woods system, as well as several severe outbreaks of financial crisis in the international financial history, which have a tremendous impact on the banking. After then, the measurement and how to guard against exchange rate risk of commercial banks have become the focus of research theorists. Since July 21th, 2005, China began to implement the managed floating exchange rate system, the financial system is gradually moving toward market-oriented and international, and RMB exchange rate is faced more and more attention from the international community. June 19th 2010, China promoted the reform of RMB exchange rate formation mechanism further, to strengthen the RMB exchange rate flexibility. However, with the increasing stronger of the impact that the development of international financial and economic on the RMB exchange rate, there are more and more factors that lead to the volatility of RMB exchange rate. Recent years, the RMB exchange rate appreciates frequently, since the exchange reform in 2005, the RMB Exchange rate against the U.S. dollar has appreciated 23.5%. Since August 2010, the expectation of RMB appreciation in international market has became stronger and stronger, and a lot of hot money streaming into China and greatly increasing the foreign currency deposits of commercial banks. At the same time of the RMB exchange rate has new high record for many days, funds outstanding for foreign exchange in domestic financial institutions is also once again soared up to 200 billion U.S. Dollars. On the other side, China's foreign exchange reserves continued to increase, as amounted to 2.45 trillion U.S. Dollars in June 2010. So, frequent fluctuations in the RMB exchange rate is exogenous, the increasing of funds outstanding for foreign exchange and business is internal, resulting in the exchange rate risk of commercial banks increased significantly.VaR (Value at Risk) as a risk measurement tool for quantitative analysis of risk, recent years, is widely recognized by the international financial sector and used in various financial risk measures as the forefront of technology. In this paper, combination of case studies and theoretical calculation method is used for in-depth analysis of commercial banks in China's current exchange rate risk measurement and management problems. Based on the analysis of calculation principles and methods of VaR model, using Eviews software to test VaR model assumptions with the value of the RMB against the U.S. Dollar species rank, and focuses on the applications of VaR model in commercial bank exchange rate risk measurement. Using Historical simulation and Monte-Carlo simulation which is the most representative applications of VaR model, having a quantitative comparative study to the exchange rate risk of a single commercial banks in China's foreign exchange risk portfolio, and also carried out pressure test under extreme financial environment.The results show that: (1) This study demonstrated that there are obvious peaks and fatness of tails characteristics in the value of the RMB against the U.S. Dollar species rank, and coincided with normal distribution, and meet the prerequisite for the application of VaR model. (2) Compared to historical simulation, Monte-Carlo simulation method is of good predictive accuracy and high precision. (3) Stress testing method as complement of the VaR method under the extreme financial environment to measure the risk of commercial banks is of high rates possibility. Finally, the paper puts forward some sound exchange rate risk management measures from the aspects of risk management business processes, information systems, internal control and so on.