Jiménez Martín, Juan Ángel and McAleer, Michael and Pérez Amaral, Teodosio (2009) What Happened to Risk Management During the 2008-09 Financial Crisis? [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 19, 2009, ] (Unpublished)
Official URL: http://eprints.ucm.es/9486/
When dealing with market risk under the Basel II Accord, variation pays in the form of lower capital requirements and higher profits. Typically, GARCH type models are chosen to forecast Value-at-Risk (VaR) using a single risk model. In this paper we illustrate two useful variations to the standard mechanism for choosing forecasts, namely: (i) combining different forecast models for each period, such as a daily model that forecasts the supremum or infinum value for the VaR; (ii) alternatively, select a single model to forecast VaR, and then modify the daily forecast, depending on the recent history of violations under the Basel II Accord. We illustrate these points using the Standard and Poor’s 500 Composite Index. In many cases we find significant decreases in the capital requirements, while incurring a number of violations that stays within the Basel II Accord limits.
|Item Type:||Working Paper or Technical Report|
JEL Classifications: G32, G11, G17, C53, C22
|Uncontrolled Keywords:||Risk management, Violations, Aggressive risk strategy, Conservative risk strategy, Value-at-risk forecasts.|
|Subjects:||Social sciences > Economics > Depressions|
Social sciences > Economics > Finance
|Series Name:||Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)|
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|Deposited On:||24 Sep 2009 10:35|
|Last Modified:||06 Feb 2014 08:26|
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