Abstract

The financial liberalization and opening-up of China contributes to the uncertainty of financial market, which means it is urgent to establish the financial risk assessment. A financial risk assessment model is designed through modified Grey Relating TOPSIS. The financial risk index system synthetically takes into account three aspects including Domestic Real Economy, Domestic Financial System and Balance of Payments. In view of the time lag, the date of each indices has been adjusted by AR (p). Then the weights of indices are determined by combination assigning method. In addition, to eliminate multicollinearity, PCA is adopted to reduce indices’ dimensions. Grey Relating TOPSIS is employed to measure financial risk. The evidence from Chinese financial history can support the model appropriately.

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