Research On The New Method Of VaR About Financial Market Risk Management Based On Interval Analysis

Financial market risk management plays an important role in the operation and supervision of the financial market. Increasing the calculating accuracy and efficiency of its methods is vital to raise the level of it .At present, Value-at-Risk (VaR), is one of the most important measures of risk management. It has been widely used for by theory circles and practice circles. The traditional methods of calculating VaR include historical simulation approach, analytical method and Monte Carlo simulation method. We can select the appropriate method based on the actual situation during the risk analysis .In this study, considering the deficiency of being difficult to realize and slow in computing of Monte Carlo simulation method, a new method of VaR based on interval analysis is proposed. Interval analysis is an approach to computing that treats an interval as a new kind of number. Estimating the accumulative probability distribution of dependent variable, which is the rate of return of the portfolio, based on Interval Analysis is the new method of Value at Risk.In this study, firstly, we present the method of estimating the accumulative probability distribution of dependent variable for a very simple example. Then we apply this method to the calculation of VaR. First, it is the risk mapping. Second, make the correlative hypothesis, fit the probability distribution of independent variable and get their ranges. Third, I estimate the accumulative probability distribution of the rate of return of portfolio based on Interval Analysis. Forth, make the correlative analysis according to the accumulative probability distribution of the rate of return of portfolio, so as to get the VaR in some confidence level.I give an example and compare the interval approach with the Monte Carlo approach. Choose the day returns of NORINCO INTERNATIONAL (000065) and SICHUAN CHEMICAL (000155) as the portfolio to analyze the method. The resulting indicates that the method of VaR based on Interval Analysis is obviously superior to Monte Carlo simulation in both calculating accuracy and efficiency.Lastly, I combine the commercial bank risk management with the recent price change based on the method, the new risk management of the commercial banks is proposed, the commercial bank should pay attention to the problems and issues raised.