Stress Testing Theoretical Methods And Their Application In China's Investment Fund Research

Researchers in the field of financial economics have long recognized the importance of measuring the risk of a portfolio of financial assets or securities. Indeed, concerns go back at least four decades, when Markowitz's pioneering work on portfolio selection (1952) explored the appropriate definition and measurement of risk. In his papers, he showed how to create a frontier of investment portfolios, such as each of them had the greatest possible expected rate of return, given their level of risk. Then Sharpe, Linter, Mossion and Ross, etc. developed Markowitz's mean-variance model, leaded to standard investment models like capital asset pricing model(CAPM), single-index model and arbitrage pricing theory(APT). After that, one technique advanced in the literature involves the use of"value-at-risk"models. These models measure the market, or price, risk of a portfolio of financial assets-that is, the risk that the market value of the portfolio will decline as a result of changes in interest rates, foreign exchange rates, equity prices, or commodity prices. Value-at-risk models aggregate the several components of price risk into a single quantitative measure of the potential for losses over a specified possibility and time horizon. But those models still do not give an answer to the question"What will be lost in the worst-case scenarios?"which every financial institution have to ask itself.In recent years, the growth of trading activities and instances of financial market instability prompted new studies underscoring the need for market participants to develop reliable risk measurement techniques. Press tests which provide the lost of institutions in the worst-case scenarios and the solutions to limit the losses, is one of the most excellent researches.Considering the theoretical and practical value of press tests, this paper researches the basis theory and the calculate methods of press tests. This paper included 6 chapters. The inner logistic clues is Why there be press tests -- What is press tests– How to simulate press tests -- How China should do from and be connected to the stress tests.