Method of Value-at-Risk and Empirical Research for Shanghai Stock Market

Controlling financial risk is an important issue for financial institution. For the necessity of risk management, the first task is to measure risk. Value-at-risk (VaR) was developed by J.P. Morgan in 1996 and has been commonly used by practitioners to quantify risk. We will use equally weighted moving average approach, the exponential weighted moving average approach, Monte Carlo simulation and the history simulation approach to calculate VaR. The result shows that the financial risk is evaluated successfully by VaR. The higher of confidence level, the larger of VaR. If the confidence level is low, VaR is similar for different approaches. However, VaR is quite different for different approaches if the confidence level is high.