Analysis Of Foreign Exchange Exposure Of Commercial Banks In China With GARCH-CVaR Models

The risk management of commercial banks has always been a significant research object in the theoretical fields.On August 11,2015,the central bank announced to improve the RMB central parity quotation mechanism.With the gradual relaxation of management by the Chinese government,the uncertainty of the international economic and financial situation and the expanding ambition of commercial banks,the foreign exchange risk faced by commercial banks in China have had some new characteristics.In this context,foreign exchange risk management of commercial banks has become an important topic,and the core is to measure foreign exchange risk.This paper adopts GARCH-CVaR model to measure the risk and gives some suggestions for the risk management.This paper is divided into two parts: theoretical research and empirical research.The theoretical part elaborates the basic concept of foreign exchange risk,reviews the current mainstream foreign exchange risk measurement and management theory,and discusses the formation mechanism of commercial banks' foreign exchange risk.The empirical part studies adaptation of GARCH-CVaR models and analyze CVaR and exposure of different banks.The study starts from exchange rate of RMB against the US dollar with GARCH-CVaR model.It is found that the foreign exchange risk increased since 2015,reaching the highest level since 1994.Then some commercial banks were selected to discuss the foreign exchange exposure.It is found that the foreign exchange exposure has been increasing since 2015.The five state-owned banks can control foreign exchange exposure actively through hedging.Joint-stock banks have smaller foreign exchange exposure,but the proportion of foreign exchange exposure is higher.The problem of increasing exchange rate fluctuations and expanding foreign exchange exposure work together and the commercial banks are facing an unprecedented foreign exchange risk.The use of GARCH-CVaR model and financial derivatives has provided new ideas for commercial banks to solve foreign exchange risk problem.