Var Method and the Application to China's Financial Risk Management

Value at risk (VaR) is a central concept in risk management, we discuss the main applications of VaR to finance currently, compare the properties of these different measures (historical simulation method, parameter method and Monte Carlo simulation method), and discuss some of the many ways they might be applied to insurance risk problems. Using STATA10.0, we study the application of VaR to China's financial risk and portfolio selection empirically. The results shows values of VaR in the methods were relatively close. In addition, with the same income, the portfolio risk reduced after adding the VaR to the portfolio model. These applications are typically complex, and this complexity means that the most appropriate estimation method will often be some form of stochastic simulation.