Using Backtesting To Measure Extreme Risk Of Financial Asset Prices

On August 17,2021,Xi Jinping emphasized at the 10 th meeting of the Central Finance and Economics Committee that "finance is the core of the modern economy,which is related to development and security.We must follow the principles of marketization and the rule of law,and coordinate the prevention and resolution of major financial risks." The source of significant financial risk is often the occurrence of extreme events.Extreme events are uncertain and difficult to quantify because of their probability of occurrence and the scale of losses caused when they occur.The risks brought by such uncertainty to investors,financial institutions,regulators and other entities are called extreme risks.The extreme tail risk is highly destructive and can easily lead to the instability of the capital market and then the financial crisis.The accuracy of the risk model is of great significance to the measurement of extreme financial risks.This paper improves the traditional backtesting method,taking into account the number and scale of losses,and displays the performance information of the risk valuation model in the form of a risk graph.The financial assets studied in this paper involve stocks,A-share industry indices,commodity futures price indices,etc.Based on the VaR model based on the GARCH method,this paper constructs the tail risk models of the single asset of the listed company,the composite asset of the industry index,and the commodity price index of bulk commodities.Three listed companies,including Shanxi Coking Coal,Valin Iron and Steel,Baosteel Co.,Ltd.,and Pingmei Co.,Ltd.in the steel and coal industry,were taken as single asset samples,and three industries were selected: breeding Shenwan index,steel Shenwan index,and coal Shenwan index.The index is used as a composite asset sample,as well as the Shanghai Futures Exchange Crude Oil Price Index,the Shanghai Futures Exchange Rebar Price Index,the DCE Coking Coal Price Index,and the DCE Coking Coal Price Index,four commodity price indices,using the risk map method for each sample.The risk model was back-tested and the model data was analyzed in detail.The research conclusions show that: due to the impact of the African swine fever event in my country’s breeding industry,although the overall risk is under control,the risk control tends to be looser,and stricter risk management measures should be adopted;the steel and coal industry has relatively common risks and extreme financial risks.The probability is relatively low.After the supply-side reform,the overall risk tends to decline,but it is necessary to prevent the rise of general risks from causing systemic risks;the risk management and control of crude oil futures in commodity trading in the futures market is too conservative.In order to avoid occupying excessive capital costs and inhibit market liquidity,a dynamic margin system should be adopted;the risk of rebar futures is accumulated,and the risk control level is too loose,and the margin ratio should be further increased;the current margin ratio of coking coal and coke is reasonable and effective,and the risk management and control level is good.This paper uses the risk map,an innovative back-testing method,to conduct a series of analysis and research in the field of extreme risk of financial asset prices,which better evaluates the current level of risk management and control,which is helpful for institutions to study more reasonable risk control models,and provide relevant information for relevant institutions.Regulators provide more precise regulatory policy recommendations.