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How Accurate Are Value-at-Risk Models at Commercial Banks?

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Author Info
Jeremy Berkowitz (University of California, Irvine,)
James O'Brien (Federal Reserve Board)
Abstract

In recent years, the trading accounts at large commercial banks have grown substantially and become progressively more diverse and complex. We provide descriptive statistics on the trading revenues from such activities and on the associated Value-at-Risk (VaR) forecasts internally estimated by banks. For a sample of large bank holding companies, we evaluate the performance of banks' trading risk models by examining the statistical accuracy of the VaR forecasts. Although a substantial literature has examined the statistical and economic meaning of Value-at-Risk models, this article is the first to provide a detailed analysis of the performance of models actually in use. Copyright The American Finance Association 2002.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 57 (2002)
Issue (Month): 3 (06)
Pages: 1093-1111
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Handle: RePEc:bla:jfinan:v:57:y:2002:i:3:p:1093-1111

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  1. Sean D. Campbell, 2005. "A review of backtesting and backtesting procedures," Finance and Economics Discussion Series 2005-21, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Memmel, Christoph & Wehn, Carsten, 2005. "The supervisor’s portfolio: the market price risk of German banks from 2001 to 2003 – Analysis and models for risk aggregation," Discussion Paper Series 2: Banking and Financial Studies 2005,02, Deutsche Bundesbank, Research Centre. [Downloadable!]
  3. Philippe Jorion, 2005. "Bank Trading Risk and Systemic Risk," NBER Working Papers 11037, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Beverly Hirtle, 2007. "Public disclosure, risk, and performance at bank holding companies," Staff Reports 293, Federal Reserve Bank of New York. [Downloadable!]
  5. Massimo Guidolin & Allan Timmerman, 2005. "Term structure of risk under alternative econometric specifications," Working Papers 2005-001, Federal Reserve Bank of St. Louis. [Downloadable!]
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  6. Beverly J. Hirtle, 2003. "What market risk capital reporting tells us about bank risk," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 37-54. [Downloadable!]
  7. Marc Saidenberg & Til Schuermann & May, . "The New Basel Capital Accord and Questions for Research," Center for Financial Institutions Working Papers 03-14, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  8. James O'Brien & Jeremy Berkowitz, 2005. "Estimating Bank Trading Risk: A Factor Model Approach," NBER Working Papers 11608, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. J. Carlos Escanciano & Jose Olmo, 2007. "Estimation risk effects on backtesting for parametric value-at-risk models," City University Economics Discussion Papers 07/11, Department of Economics, City University, London. [Downloadable!]
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  10. Patrick de Fontnouvelle & Virginia DeJesus-Rueff & John Jordan & Eric Rosengren, 2003. "Capital and risk: new evidence on implications of large operational losses," Working Papers 03-5, Federal Reserve Bank of Boston. [Downloadable!]
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