Portfolio Risk Utilising a Value at Risk Methodology Dissertation

Portfolio Risk Utilising a Value at Risk Methodology - Dissertation Example my gratitude and thanks to my supervisor Tony Hall and course leader Jason Law whose insight and experience showed me the right path and guidance to complete this project. My acknowledgment would not be complete if I miss to thank other tutors and classmates who were the source of learning and enjoyment throughout my stay at the university. Table of Contents Table of Contents 6 CHAPTER 1 8 INTRODUCTION TO CHINA 'S STOCK MARKET 8 1.1 Introduction 8 CHAPTER II 12 1.2 Stock Market Development from 1922 12 1.3 Institutional Facts about the Chinese Stock Industry 12 1.3.1 Stock market structure 12 1.3.2 Share structure 13 1.3.3 Investors 14 1.3.4 Listing and de-listing 14 1.3.5 Trading mechanism 16 1.4 Value at Risk 17 1.4.1 Definition of Value at Risk 18 1.5 Existing Approaches in Value at Risk Estimation 21 1.5.1 Traditional Historical Simulation 21 1.5.2 Variance-Covariance Approach 23 1.5.3 GARCH Model Building Approach 25 1.5.4 Monte Carlo Simulation 25 Chapter 3 28 Value at Risk Methodology 28 Introduction 28 1.2 Portfolio VAR 31 1.3 Historical Simulation 33 1.4 Monte Carlo Simulation 34 1.5 VAR Strengths and Weaknesses 35 CHAPTER IV 37 DYNAMIC CORRELATOIN OF CHINESE STOCK 37 4.1 Introduction 37 4.2 Data and Descriptive Statistics 40 4.2.1 The Data 40 4.2.2 Summary statistics 41 4.3 The dynamic Correlation Coefficient Model 45 4.4 Empirical Estimations 48 CHAPTER V 51 CONCLUSION 51 Effects of policy change 51 Conclusion 53 CHAPTER 1 INTRODUCTION TO CHINA 'S STOCK MARKET 1.1 Introduction With China's rapid transition to a modern economy, all of its business sectors and industries are undergoing dynamic changes. A substantial amount of working capital is required by business firms, and economic development in China demands rapid advancement of capital...With China’s rapid transition to a modern economy, all of its business sectors and industries are undergoing dynamic changes. A substantial amount of working capital is required by business firms, and economic development in China demands rapid advancement of capital markets. In retrospect, the first stock in China, Shen BaoAn, was issued in 1983. By then China had no securities exchange, and stock trading activities were operated virtually underground (Chen and Sun, 2003). It was three years later, on September 26, 1986, that the JinAn Business of CICB Shanghai Trust and Invest Company began to trade its stocks over the counter. Nevertheless, the local secondary market trading was still unofficial and unorgani zed (Gordon and Li, 1991). After several years’ effort and a learning period, the Shanghai Stock Exchange and Shenshen Stock Exchange were formally established on December 19, and December 1, 1990, respectively. Since their establishment in the early 1990s, developing Chinese stock markets have received a great deal of attention from both domestic and international practitioners and researchers. The main reason for this is that, before 1982, the Chinese economy was a central planning system in which no private business was allowed, and there was no market-oriented banking system. The constitution Act in 1982 lifted the ban on private business activities (Shirai, 2002), allowing a large number of state-owned enterprises (SOEs) and banks to be privatized and incorporated.