The Ten Commandments for Optimizing Value-at-Risk and Daily Capital Charges



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McAleer, Michael (2009) The Ten Commandments for Optimizing Value-at-Risk and Daily Capital Charges. [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 10, 2009, ]

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Credit risk is the most important type of risk in terms of monetary value. Another key risk measure is market risk, which is concerned with stocks and bonds, and related
financial derivatives, as well as exchange rates and interest rates. This paper is concerned with market risk management and monitoring under the Basel II Accord, and presents Ten Commandments for optimizing Value-at-Risk (VaR) and daily capital charges, based on choosing wisely from: (1) conditional, stochastic and realized volatility; (2) symmetry, asymmetry and leverage; (3) dynamic correlations and dynamic covariances; (4) single index and portfolio models; (5) parametric, semiparametric and nonparametric models; (6) estimation, simulation and calibration of parameters; (7) assumptions, regularity conditions and statistical properties; (8)accuracy in calculating moments and forecasts; (9) optimizing threshold violations and economic benefits; and (10) optimizing private and public benefits of risk management. For practical purposes, it is found that the Basel II Accord would seem to encourage excessive risk taking at the expense of providing accurate measures and forecasts of risk and VaR.

Item Type:Working Paper or Technical Report
Additional Information:

El autor pertenece a Departamento de Economía Cuántica de la Universidad Complutense de Madrid y al Econometric Institute. Erasmus University Rotterdam

Uncontrolled Keywords:Daily capital charges; Excessive risk taking Market risk; Risk management; Value-at-risk; Violations.
Subjects:Social sciences > Economics > Finance
JEL:G32, G11, G17, C53
Series Name:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
ID Code:8627
Deposited On:11 Mar 2009 10:57
Last Modified:15 Jan 2021 09:58

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