Chang , Chia-Lin and Jiménez Martín, Juan Ángel and McAleer, Michael and Pérez Amaral, Teodosio (2011) Risk Management of Risk under the Basel Accord: Forecasting Value-at-Risk of VIX Futures. [Working Paper or Technical Report] (Unpublished)
Available under License Creative Commons Attribution Non-commercial Share Alike.
Official URL: http://eprints.ucm.es/12285/
The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and
associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. McAleer, Jimenez-Martin and Perez-
Amaral (2009) proposed a new approach to model selection for predicting VaR, consisting of combining alternative risk models, and comparing conservative and aggressive strategies for choosing between VaR models. This paper addresses the question of risk management of risk, namely VaR of VIX futures prices. We examine how different risk management strategies performed during the 2008-09 global financial crisis (GFC). We find that an aggressive strategy of choosing the Supremum of the single model forecasts is preferred to the other alternatives, and is robust during the GFC. However, this strategy implies relatively high
numbers of violations and accumulated losses, though these are admissible under the Basel II Accord.
|Item Type:||Working Paper or Technical Report|
|Additional Information:||JEL Classifications: G32, G11, G17, C53, C22.|
|Uncontrolled Keywords:||Median strategy, Value-at-Risk (VaR), daily capital charges, violation penalties, optimizing strategy, aggressive risk management, conservative risk management, Basel II Accord, VIX futures, global financial crisis (GFC).|
|Subjects:||Social sciences > Economics > Finance|
|Series Name:||Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)|
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|Deposited On:||23 Feb 2011 11:12|
|Last Modified:||18 Nov 2013 13:28|
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