scholarly journals THE VAR AT RISK

2010 ◽  
Vol 13 (04) ◽  
pp. 503-506 ◽  
Author(s):  
ALFRED GALICHON
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Capital Requirements ◽  
Regulatory Capital ◽  
Regulatory Arbitrage ◽  
Risk Budgeting ◽  
Holding Company

I show that the structure of the firm is not neutral with respect to regulatory capital budgeted under rules which are based on the Value-at-Risk. Indeed, when a holding company has the liberty to divide its risk into as many subsidiaries as needed, and when the subsidiaries are subject to capital requirements according to the Value-at-Risk budgeting rule, then there is an optimal way to divide risk which is such that the total amount of capital to be budgeted by the shareholder is zero. This result may lead to regulatory arbitrage by some firms.

The Value-at-Risk Methodology of Basel II and Basel III

2014 ◽  
pp. 100-114 ◽  
Keyword(s):  
At Risk ◽  
Risk Management ◽  
Value At Risk ◽  
Basel Ii ◽  
Risk Measurement ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Regulatory Capital ◽  
Advantages And Disadvantages ◽  
Risk Methodology

This chapter examines the advantages and disadvantages of the risk estimate approach—Value-at-Risk (VaR) which has been extensively embraced by regulators and practitioners in financial markets under the Basel II & III framework as the basis of risk measurement, both for the purpose of ensuring regulatory capital adequacy, and risk management and strategic planning at industry level.

scholarly journals Market Risk Measurement

2020 ◽  
Author(s):  
Emese Lazar ◽  
Ning Zhang
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Preliminary Analysis ◽  
Risk Measures ◽  
Market Risk ◽  
Capital Requirements ◽  
Risk Measurement ◽  
Regulatory Framework ◽  
Bank Capital ◽  
Bank Capital Requirements

This chapter presents a preliminary analysis on how some market risk measures dramatically increased during the COVID-19 pandemic, with measures computed over longer horizons experiencing more pronounced effects. We provide examples when regulatory market risk measurement proved to be suboptimal, overestimating risk. A further issue was the large number of Value-at-Risk ‘exceptions’ during the first few months of the crisis, which normally leads to overinflated bank capital requirements. The current regulatory framework should address these problems by suggesting improvements to the calculation of risk measures and/or by modifying the rules which determine capital requirements to make them appropriate and realistic in crisis situations.

scholarly journals A stochastic implementation of the APCI model for mortality projections

2019 ◽  
Vol 24 ◽  
Author(s):  
S. J. Richards ◽  
I. D. Currie ◽  
T. Kleinow ◽  
G. P. Ritchie
Keyword(s):  
At Risk ◽  
Stochastic Model ◽  
Value At Risk ◽  
Capital Requirements ◽  
Mortality Forecasting ◽  
Forecasting Models ◽  
Mortality Projections ◽  
Model Fits

AbstractThe Age-Period-Cohort-Improvement (APCI) model is a new addition to the canon of mortality forecasting models. It was introduced by Continuous Mortality Investigation as a means of parameterising a deterministic targeting model for forecasting, but this paper shows how it can be implemented as a fully stochastic model. We demonstrate a number of interesting features about the APCI model, including which parameters to smooth and how much better the model fits to the data compared to some other, related models. However, this better fit also sometimes results in higher value-at-risk (VaR)-style capital requirements for insurers, and we explore why this is by looking at the density of the VaR simulations.

scholarly journals Risk Measures and Multivariate Extensions of Breiman's Theorem

2012 ◽  
Vol 49 (2) ◽  
pp. 364-384 ◽  
Author(s):  
Anne-Laure Fougeres ◽  
Cecile Mercadier
Keyword(s):  
Ruin Probability ◽  
Value At Risk ◽  
Risk Measures ◽  
Risk Measure ◽  
Capital Requirements ◽  
Regulatory Capital ◽  
Tail Probabilities ◽  
Solvency Capital ◽  
Finite Time Horizon ◽  
Standard Risk

The modeling of insurance risks has received an increasing amount of attention because of solvency capital requirements. The ruin probability has become a standard risk measure to assess regulatory capital. In this paper we focus on discrete-time models for the finite time horizon. Several results are available in the literature to calibrate the ruin probability by means of the sum of the tail probabilities of individual claim amounts. The aim of this work is to obtain asymptotics for such probabilities under multivariate regular variation and, more precisely, to derive them from extensions of Breiman's theorem. We thus present new situations where the ruin probability admits computable equivalents. We also derive asymptotics for the value at risk.

Risk budgeting and Value-at-Risk

2008 ◽  
Vol 1 (2) ◽  
pp. 149
Author(s):  
Keith Pilbeam ◽  
Rehan Noronha
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Risk Budgeting

RISK MEASURES DERIVED FROM A REGULATOR’S PERSPECTIVE ON THE REGULATORY CAPITAL REQUIREMENTS FOR INSURERS

2020 ◽  
Vol 50 (3) ◽  
pp. 1065-1092
Author(s):  
Jun Cai ◽  
Tiantian Mao
Keyword(s):  
Value At Risk ◽  
Risk Measures ◽  
Wasserstein Distance ◽  
Capital Requirements ◽  
Translation Invariance ◽  
Coherent Risk Measures ◽  
Regulatory Capital ◽  
Coherent Risk ◽  
Positive Homogeneity ◽  
Stop Loss

AbstractIn this study, we propose new risk measures from a regulator’s perspective on the regulatory capital requirements. The proposed risk measures possess many desired properties, including monotonicity, translation-invariance, positive homogeneity, subadditivity, nonnegative loading, and stop-loss order preserving. The new risk measures not only generalize the existing, well-known risk measures in the literature, including the Dutch, tail value-at-risk (TVaR), and expectile measures, but also provide new approaches to generate feasible and practical coherent risk measures. As examples of the new risk measures, TVaR-type generalized expectiles are investigated in detail. In particular, we present the dual and Kusuoka representations of the TVaR-type generalized expectiles and discuss their robustness with respect to the Wasserstein distance.

Value-at-risk and related measures for the Bitcoin

2018 ◽  
Vol 19 (2) ◽  
pp. 127-136 ◽  
Author(s):  
Stavros Stavroyiannis
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Risk Measures ◽  
Capital Allocation ◽  
Capital Requirements ◽  
Spot Price ◽  
Content Type ◽  
Type Iv ◽  
Pearson Type ◽  
Standard And Poor's

Purpose The purpose of this paper is to examine the value-at-risk and related measures for the Bitcoin and to compare the findings with Standard and Poor’s SP500 Index, and the gold spot price time series. Design/methodology/approach A GJR-GARCH model has been implemented, in which the residuals follow the standardized Pearson type-IV distribution. A large variety of value-at-risk measures and backtesting criteria are implemented. Findings Bitcoin is a highly volatile currency violating the value-at-risk measures more than the other assets. With respect to the Basel Committee on Banking Supervision Accords, a Bitcoin investor is subjected to higher capital requirements and capital allocation ratio. Practical implications The risk of an investor holding Bitcoins is measured and quantified via the regulatory framework practices. Originality/value This paper is the first comprehensive approach to the risk properties of Bitcoin.

scholarly journals Avaliação de Modelos de Cálculo de Exigência de Capital para Risco Cambial

2005 ◽  
Vol 3 (2) ◽  
pp. 223
Author(s):  
Claudio H. da S. Barbedo ◽  
Gustavo S. Araújo ◽  
João Maurício S. Moreira ◽  
Ricardo S. Maia Clemente
Keyword(s):  
At Risk ◽  
Financial Institutions ◽  
Value At Risk ◽  
Hybrid Approach ◽  
Capital Allocation ◽  
Capital Requirements ◽  
Internal Models ◽  
Capital Requirement ◽  
Brazilian Legislation ◽  
Historical Model

This paper examines capital requirement for financial institutions in order to cover market risk stemming from exposure to foreign currencies. The models examined belong to two groups according to the approach involved: standardized and internal models. In the first group, we study the Basel model and the model adopted by the Brazilian legislation. In the second group, we consider the models based on the concept of value at risk (VaR). We analyze the single and the double-window historical model, the exponential smoothing model (EWMA) and a hybrid approach that combines features of both models. The results suggest that the Basel model is inadequate to the Brazilian market, exhibiting a large number of exceptions. The model of the Brazilian legislation has no exceptions, though generating higher capital requirements than other internal models based on VaR. In general, VaR-based models perform better and result in less capital allocation than the standardized approach model applied in Brazil.

Comparison of market risk models with respect to suggested changes of Basel Accord

2014 ◽  
Vol 64 (Supplement-2) ◽  
pp. 257-274
Author(s):  
Eliška Stiborová ◽  
Barbora Sznapková ◽  
Tomáš Tichý
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Risk Estimation ◽  
Market Risk ◽  
Capital Requirements ◽  
Internal Models ◽  
Conditional Value At Risk ◽  
Risk Capital ◽  
Basel Accord ◽  
Capital Charge

The market risk capital charge of financial institutions has been mostly calculated by internal models based on integrated Value at Risk (VaR) approach, since the introduction of the Amendment to Basel Accord in 1996. The internal models should fulfil several quantitative and qualitative criteria. Besides others, it is the so called backtesting procedure, which was one of the main reasons why the alternative approach to market risk estimation — conditional Value at Risk or Expected Shortfall (ES) — were not applicable for the purpose of capital charge calculation. However, it is supposed that this approach will be incorporated into Basel III. In this paper we provide an extensive simulation study using various sets of market data to show potential impact of ES on capital requirements.

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