A Quantitative Analysis of Value-at-Risk based on Two-factor Pricing Model and GARCH Model

Abstract

Value-at-risk has become the main instrument for the measurement and management of financial risks. With innovative construction of multi-level capital market system and gradual improvement of functions of financial system in China, financial risks demonstrate some new uncertainties. With regard to quantitative analysis and the management of risks in Chinese financial market, adoption of some methods for quantification of value-at-risk is of greatly importance in the fields of both theory and practice. The constant improvement in research of theory and practice concerning financial development gives birth to all kinds of new instruments for measurement and management of financial risks, among which value-at-risk is a common new instrument applied in measurement and management of modern finance. In this paper, an empirical analysis is conducted on quantification of financial value-at-risk based on Two-factor pricing model and GARCH model.