A Risk Measurement Of The Inter-bank Offered Rate Of Commercial Banks Based On VaR

The liberalization of China’s interest rate initiated from June, 1996—when its central bank opened its Inter Bank Offered Rate(IBOR). Ever since then, China has gradually achieved the diversity and liberalization of various kinds of interests. From July 2013, China opened the loan interests of its domestic financing organizations, which indicates that China had already stepped into the age of comprehensive interest liberalization. Many benefits are able to be brought in with interest liberalization, such as optimizing the resource configuration of capital market, and improving the working efficiency of domestic financial systems. However, the management difficulty of interest risks is also increased for commercial banks.Until now, most interest risk related researches, both home and abroad, focus on the risk measurement of financial market. However, the objective of this article is to improve the risk management system of IBOR of domestic commercial banks to some extent, and to promote the healthy development of interest liberalization. This article follows the internal logic of “Risk Analysis—Risk Measurement—Risk Control” to do the research of of IBOR risk management of domestic commercial banks. It will include(1) reality analysis,(2) theory analysis,(3) model construction and empirical research, and(4) conclusion analysis.Firstly, this article looks back into the development process of domestic inter-bank market of China based on reality. It infers that Shibor is most widespread used, which has a irreplaceable effect on China’s rate liberalization reformation. With Shibor’s characteristics and current status, it analyses the feature and risk situation of Shibor. Then, focusing on IBOR, it performs a theoretical analysis under the logic relation “connotation—structure type—factor analysis”. After that, focusing on the risk measurement, it constructs ARMA-GARCH models based on different distributions and performs an empirical research via most recent sample data of Shibor. The research result indicates that all of GARCH family models pass the back testing under the confidence level of 99%. The result of GARCH family models is relative satisfying under high confidence level, since the real failure days of VaR are quite close to the expected one, which is calculated by these models. Therefore, GARCH model analysis is a valuable choice to analyze risk value under high confidence level for Shibor data. Considering the deficiency of VaR in extreme cases, this article raises a risk management method: for normal cases of domestic IBOR market, construct a VaR model to measure the rate risk; for exceptional cases, use tension testing to check the risk of IBOR rate. Finally, from the perspective of risk control, this article provides the design methodology and policies based on risk measurement models, Shibor inflections and related risk-avoiding derivatives.The innovation of this article is in increasing the integrity and comprehensiveness of measurement. Currently, researchers in China often use Kupiec testing to evaluate the validity of the risk measure in VaR model. However, Kupiec is a singular way so that it can only check the correctness of a model, rather than the validity of the model. Therefore, based on Kupiec testing, this article measures models’ stability via the mean value and standard deviation of VaR calculated from them. Besides, due to the limitation of actual data and the length of this article, imperfection still exists on several parts like empirical analysis on IBOR risk of commercial banks, procedure design of risk management, and evaluation on constructed systems. But with the continuous development and complements of domestic financial market, the construction and researches are destined to be in progress for the IBOR risk management of domestic commercial banks in China.