Applied Analysis of Stylized Facts in Risk Management in China's Bond Market

Abstract

Abstract:

Stylized facts play an important role in risk measurement and risk management inthe financial market. The paper builds various models of risk measurement in bond market, which are underneath the stylized facts in financial markets. In addition, the applied range and the accuracy of these models are discussed by strict backtesting, then, the paper analyzes the applied value of stylized facts in risk management in China's bond market. Empirical results show that fat-tailed distribution, which has very important practical value in risk management, is more accurate than normal distribution in measuring dynamic risk in China's bond market, and the autocorrelation of return and the skewed distribution contain more valuable information in extreme risk measurement. Besides, the leverage effect of volatility is not significant. Moreover, compared with the other models, the model on leverage effect does not own stronger capabilities of risk measurement.

Key words: stylized facts, bond market, dynamic risk, risk management, backtesting

Hou Xianping, Huang Dengshi, Chen Wang, Xu Kai. Applied Analysis of Stylized Facts in Risk Management in China's Bond Market[J]. , 2016, 28(9): 41-50.

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