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 ContentsTable of Contents 6CHAPTER 1 8INTRODUCTION TO CHINA 'S STOCK MARKET 81.1 Introduction 8CHAPTER II 121.2 Stock Market Development from 1922 121.

3 Institutional Facts about the Chinese Stock Industry 121.3.1 Stock market structure 121.3.2 Share structure 131.3.3 Investors 141.3.4 Listing and de-listing 141.3.5 Trading mechanism 161.4 Value at Risk 171.4.1 Definition of Value at Risk 181.5 Existing Approaches in Value at Risk Estimation 211.5.1 Traditional Historical Simulation 211.5.2 Variance-Covariance Approach 231.5.3 GARCH Model Building Approach 251.5.4 Monte Carlo Simulation 25Chapter 3 28Value at Risk Methodology 28Introduction 281.

2 Portfolio VAR 311.3 Historical Simulation 331.4 Monte Carlo Simulation 341.5 VAR Strengths and Weaknesses 35CHAPTER IV 37DYNAMIC CORRELATOIN OF CHINESE STOCK 374.1 Introduction 374.2 Data and Descriptive Statistics 404.2.1 The Data 404.2.2 Summary statistics 414.3 The dynamic Correlation Coefficient Model 454.4 Empirical Estimations 48CHAPTER V 51CONCLUSION 51Effects of policy change 51Conclusion 53CHAPTER 1INTRODUCTION TO CHINA 'S STOCK MARKET1.1 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 unorganized (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.