Project Financing Risk Assessment Based On Val

Project financing itself has a long history. Since the Prime Minister of Turkey TurgutÖ zal first put forward the concept of BOT in1980s. this model of financing has been developing rapidly and using widely all over the world, from infrastructure projects to industrial fields. At the current stage in China, project financing can solve the contradiction between lack of funds for infrastructure construction and investment channel insufficiency for private capital.In practice, project financing has been gained the world’s attention. It plays a great role in gigantic infrastructure construction. Such as British-French channel tunnel. Malaysia North-South Expressway and Hongkong Disney Park, project financing has been showing its charm. In our country, project financing also very active. In the project such as Shenzhen Shatou power plant (B), Chengdu sixth water plant and Beijing "Bird’s Nest" Olympic stadium, project financing played a key role.In fact, the project financing being widely used as a means of risk diversification and its success lies on effective risk management. There are many failure cases as the result of various kinds of risk in project financing practices. Generally, project financing is capital-intensive, and once failure, to the participants, meaning huge losses. Thus, increasingly number of scholars has been focusing their attention on the risk of project financing.As a whole, risk management of project financing can divided into four stages: risk identification, risk assessment, risk management and effect evaluation. For the risk identification, we can use Delphi method, brainstorming, check list, etc. As the result of identification, the risk can be assorted into10categories:credit risk, completion risk, production risk, market risk, financial risk, political risk, legal risk, uncontrollable risk, environmental risk and country risk. Risk management strategies include:risk mitigation, risk prevention, risk avoidance, risk transfer, risk acceptance and risk reserve. Effect evaluation signifying review of the risk management process and summarize the experience and lessons. Risk assessment is the premise of risk management. At present, common methods including AHP (Analytic Hierarchy Process), Fuzzy Influence Diagram Method, Neural Network Method, SCERT (Synergistic Contingency Evaluation and Response Techniques), System Dynamics Method, Sensitivity Analysis and Monte Carlo method, etc. However, each project is unique and risk is inherent uncertainty, making all kinds of methods above have been developed exist different limitations.VaR is a popular method to measure financial risk and Monte Carlo simulation, as one of technic to calculate VaR, is a kind of technology which was adopted in the process of developing atomic bomb in the Second World War. For Monte Carlo simulation has a unique advantage in dealing with risk and uncertainty, this method has been widely used in many fields, such as engineering, physics and finance. In1959, Sklar pointed out that a joint distribution function can be decomposed into k margins and a Copula. The Copula describes the correlation between variables.Based on the previous research, this thesis attempts to describe relationship between the risk factors with Copula theory, thus calculate the value of VaR on the measure of net present value (NPV), by using Monte Carlo simulation technique. Therefore, the innovation of this article contains three points as follows:introduce Copula technique into analyzing correlation between project financing risk factors first time, which provides a new way for the study of this question; realizing Monte Carlo simulation with multiple factors; combining the simulation and VaR which provides an alternative approach to project financing risk assessment.This paper selects the TX expressway as a case to testify the feasibility of this method.In the case we choose the operating cash inflow and outflow volume as the risk factors to represent the market risk and Copula their correlation. We assume that the TX expressway’s operating cash flow has the same characteristics of XG speedway’s, for the way TX and XG are associated with. So, we figure out Copula from XG highway historical data. According to the TX expressway feasibility study report, we set a series of hypotheses about its cash flows. Last, we work out the value of VaR with the measure of NPV (Net Present Value).