Risk Management VaR Bond Investments

With the continuous expansion of China’s bond market and growing of bonds varieties,the risk control of bond investment is becoming more and more important. In accordancewith international standards of risk control, the Thesis focus on using different VaRmethods to manage bond portfolio risk, which practically has great guiding value for bondinvestors,such as, commercial banks,bond funds and others. Firstly, The Thesissystematically introduces the basic elements of bonds, reviews the development of China’sbond market and the key points that we should pay attendtion in bond investment. Then,we introduce the development market risk measurement, define VaR and ES methods,compares the differences between VaR and traditional market risk measurement methodsand introduce the most popular VaR methods. On this basis, we build a portfolio whichconsist of10representative bonds, and use historical simulation method, multivariatenormal variance-covariance method, MC-GARCH-VaR method and the t-copula methodfor the calculation of bond portfolios’ VaR, analysis of the advantages and disadvantagesof the four VaR methods and test the effectiveness of the four different methods then sortthem. Finally, we use the mean-VaR approach to optimize bonds portfolio which consist of56kinds of bonds, and provide bond investment guidance to bonds investers, such ascommercial banks, bond funds.