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GFC-Robust Risk Management Under the Basel Accord Using Extreme Value Methodologies


Santos, Paulo Araújo y Jimenez-Martin, Juan-Angel y McAleer, Michael y Pérez Amaral, Teodosio (2011) GFC-Robust Risk Management Under the Basel Accord Using Extreme Value Methodologies. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico; nº 27, 2011, ] (No publicado)

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In McAleer et al. (2010b), a robust risk management strategy to the Global Financial Crisis (GFC) was proposed under the Basel II Accord by selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models. The robust forecast was based on the median of the point VaR forecasts of a set of conditional volatility models. In this paper we provide further evidence on the suitability of the median as a GFC-robust strategy by using an additional set of new extreme value forecasting models and by extending the sample period for comparison. These extreme value models include DPOT and Conditional EVT. Such models might be expected to be useful in explaining financial data, especially in the presence of extreme shocks that arise during a GFC. Our empirical results confirm that the median remains GFC-robust even in the presence of these new extreme value models. This is illustrated by using the S&P500 index before, during and after the 2008-09 GFC. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria, including several tests for independence of the violations. The strategy based on the median, or more generally, on combined forecasts of single models, is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.

Tipo de documento:Documento de trabajo o Informe técnico
Palabras clave:Value-at-Risk (VaR), DPOT, daily capital charges, Robust forecasts, Violation penalties, Optimizing strategy, Aggressive risk management, Conservative risk management, Basel, Global financial crisis.
Materias:Ciencias Sociales > Economía > Finanzas
Ciencias Sociales > Economía > Econometría
JEL:G32, G11, G17, C53, C22
Título de serie o colección:Documentos de Trabajo del Instituto Complutense de Análisis Económico
Código ID:12968

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