McAleer, Michael and Jiménez Martín, Juan Ángel and Pérez Amaral, Teodosio (2009) Optimal Risk Management Before, During and After the 2008-09 Financial Crisis. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 20, 2009, ] (Unpublished)
Official URL: http://eprints.ucm.es/9478/
In this paper we advance the idea that optimal risk management under the Basel II Accord will typically require the use of a combination of different models of risk. This idea is illustrated by analyzing the best empirical models of risk for five stock indexes before, during,and after the 2008-09 financial crisis. The data used are the Dow Jones Industrial Average, Financial Times Stock Exchange 100, Nikkei, Hang Seng and Standard and Poor’s 500 Composite Index. The primary goal of the exercise is to identify the best models for risk management in each period according to the minimization of average daily capital requirements under the Basel II Accord. It is found that the best risk models can and do vary before, during and after the 2008-09 financial crisis. Moreover, it is found that an aggressive risk management strategy, namely the supremum strategy that combines different models of risk, can result in significant gains in average daily capital requirements, relative to the strategy of using single models, while staying within the limits of the Basel II Accord.
|Item Type:||Working Paper or Technical Report|
JEL Classifications: G32, G11, G17, C53, C22
|Uncontrolled Keywords:||Optimal risk management, Average daily capital equirements, Alternative risk strategies, Value-at-risk forecasts, Combining risk models.|
|Subjects:||Social sciences > Economics > Finance|
Social sciences > Economics > Depressions
|Series Name:||Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)|
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|Deposited On:||22 Sep 2009 10:10|
|Last Modified:||06 Feb 2014 08:26|
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