Based On Extreme Value Theory Of Commercial Banks Operating In China Risk Theory And Empirical Research

Under the new Basel Accord,the constitution of commercial banks risks can be categorized into Market Risk,Credit Risk and Operational Risk. Market risk and credit risk have long been concerned by commercial banks and a relatively comprehensive risk management system has been built and implemented;however,the research and attentions on Operational Risk is still in stagnation and lagging behind.With the rapid development of innovative financial product,banks are facing more complex risks,and Operational Risk,whose loss distribution is attributed to a fat-tail effect(happening less frequently but result in extreme losses) compare to Market Risk and Credit Risk,should not be ignored or underestimated.Endless fraud and loss events of operational risk created a huge resistance to the development of banking industry,while at the same time raising the importance on the operational risk management.However,there is a serious shortage of VaR in measuring the operational risk with a fat-tail distribution characteristic.Based on the CVaR and Extreme Value Theory(Extreme Value Theory,EVT),this paper introduced a method to overcome the shortage and inconsistency problem of VaR measurement.Based on the consistent principle of risk measurement and the POT method of EVT theory,we measured the risk of low-frequency high-loss events on commercial banks and estimated the VaR and CVaR value under different confident interval to be a reference for Bank Regulatory Commission setting the limitation on the bank reserve capital and minimize the extreme loss caused by operational risk.This paper focuses on the tail risk analysis of China local bank as well as several famous foreign banks,in order to compare the difference of their extreme risk distribution,In this paper,we selected four famous banks——China Merchants Bank,Bank of China,HSBA,WFC for presenting the application of EVT method and their analytics results.The results indicate that the operational risk of local banks prior to 2008 is more volatile than foreign banks;while after 2008,the operational risk of foreign banks have a higher volatility indicating foreign markets have faced great external impact and results in a much higher volatility attribution.After 2008, the volatility of operation risk of the domestic market is similar to the result prior to 2008,and this indicates the operational risk of domestic market is mainly a result of internal risk.