Regulatory evaluation of value-at-risk models
AbstractBeginning in 1998, commercial banks may determine their regulatory capital requirements for market risk exposure using value-at-risk (VaR) models; i.e., time-series models of the distributions of portfolio returns. Currently, regulators have available three statistical methods for evaluating the accuracy of VaR models: the binomial method, the interval forecast method, and the distribution forecast method. These methods test whether the VaR forecasts in question exhibit properties characteristics of accurate VaR forecasts. However, the statistical tests can have low power against alternative models. A new evaluation method, based on proper scoring rules for probability forecasts, is proposed. Simulation results indicate that this method is clearly capable of differentiating among accurate and alternative VaR models.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Research Paper with number 9710.
Date of creation: 1997
Date of revision:
Other versions of this item:
- Jose A. Lopez, 1996. "Regulatory Evaluation of Value-at-Risk Models," Center for Financial Institutions Working Papers 96-51, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Jose A. Lopez, 1997. "Regulatory evaluation of value-at-risk models," Staff Reports 33, Federal Reserve Bank of New York.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Granger, C. W. J. & White, Halbert & Kamstra, Mark, 1989. "Interval forecasting : An analysis based upon ARCH-quantile estimators," Journal of Econometrics, Elsevier, vol. 40(1), pages 87-96, January.
- Paul H. Kupiec & James M. O'Brien, 1995.
"A pre-commitment approach to capital requirements for market risk,"
475, Federal Reserve Bank of Chicago.
- Paul H. Kupiec & James M. O'Brien, 1995. "A pre-commitment approach to capital requirements for market risk," Finance and Economics Discussion Series 95-36, Board of Governors of the Federal Reserve System (U.S.).
- Francis X. Diebold & Jose A. Lopez, 1996.
"Forecast Evaluation and Combination,"
NBER Technical Working Papers
0192, National Bureau of Economic Research, Inc.
- Granger, C.W.J. & Pesaran, H., 1996. "A Decision_Theoretic Approach to Forecast Evaluation," Cambridge Working Papers in Economics 9618, Faculty of Economics, University of Cambridge.
- Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
- Chatfield, Chris, 1993. "Calculating Interval Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 121-35, April.
- Dimson, Elroy & Marsh, Paul, 1995. " Capital Requirements for Securities Firms," Journal of Finance, American Finance Association, vol. 50(3), pages 821-51, July.
- Lopez, Jose A, 2001.
"Evaluating the Predictive Accuracy of Volatility Models,"
Journal of Forecasting,
John Wiley & Sons, Ltd., vol. 20(2), pages 87-109, March.
- Jose A. Lopez, 1995. "Evaluating the predictive accuracy of volatility models," Research Paper 9524, Federal Reserve Bank of New York.
- Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, 1997.
"Evaluating density forecasts,"
97-6, Federal Reserve Bank of Philadelphia.
- Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, . "Evaluating Density Forecasts," CARESS Working Papres 97-18, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, 1997. "Evaluating Density Forecasts," NBER Technical Working Papers 0215, National Bureau of Economic Research, Inc.
- Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, 1997. "Evaluating Density Forecasts," Center for Financial Institutions Working Papers 97-37, Wharton School Center for Financial Institutions, University of Pennsylvania.
- J. S. Butler & Barry Schachter, 1996. "Improving Value-At-Risk Estimates By Combining Kernel Estimation With Historical Simulation," Finance 9605001, EconWPA.
- Brock, W.A. & Dechert, W.D. & LeBaron, B. & Scheinkman, J.A., 1995. "A Test for Independence Based on the Correlation Dimension," Working papers 9520, Wisconsin Madison - Social Systems.
- Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
- Arturo Estrella, 1995. "A prolegomenon to future capital requirements," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 1-12.
- Darryll Hendricks & Beverly Hirtle, 1997. "Bank capital requirements for market risk: the internal models approach," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-12.
- Darryll Hendricks, 1996. "Evaluation of value-at-risk models using historical data," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 39-69.
- Jose A. Lopez, 1998.
"Methods for evaluating value-at-risk estimates,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Oct, pages 119-124.
- Haas, Markus & Mittnik, Stefan & Paolella, Marc S., 2008.
"Asymmetric multivariate normal mixture GARCH,"
CFS Working Paper Series
2008/07, Center for Financial Studies (CFS).
- Jeremy Berkowitz, 1999. "Evaluating the forecasts of risk models," Finance and Economics Discussion Series 1999-11, Board of Governors of the Federal Reserve System (U.S.).
- Xiongwei Ju & Neil D. Pearson, 1998. "Using Value-at-Risk to Control Risk Taking: How Wrong Can you Be?," Finance 9810002, EconWPA.
- Aymen BEN REJEB & Ousama BEN SALHA & Jaleleddine BEN REJEB, 2012. "Value-at-Risk Analysis for the Tunisian Currency Market: A Comparative Study," International Journal of Economics and Financial Issues, Econjournals, vol. 2(2), pages 110-125.
- Mark R. Manfredo. & Raymond M. Leuthold, 1999. "Market Risk Measurement and the Cattle Feeding Margin: An Application of Value-at-Risk," Finance 9908002, EconWPA.
- Luiz Renato Lima & Breno Pinheiro NÃ©ri, 2006.
"Comparing Value-at-Risk Methodologies,"
Computing in Economics and Finance 2006
1, Society for Computational Economics.
- Lima, Luiz Renato Regis de Oliveira & Neri, Breno de Andrade Pinheiro, 2006. "Comparing Value-at-Risk Methodologies," Economics Working Papers (Ensaios Economicos da EPGE) 629, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- L. Kourouma & D. Dupre & G. Sanfilippo & O. Taramasco, 2011. "Extreme Value at Risk and Expected Shortfall during Financial Crisis," Post-Print halshs-00658495, HAL.
- Michael Clements, 2006. "Evaluating the survey of professional forecasters probability distributions of expected inflation based on derived event probability forecasts," Empirical Economics, Springer, vol. 31(1), pages 49-64, March.
- Michael P. Clements & Nick Taylor, 2003. "Evaluating interval forecasts of high-frequency financial data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(4), pages 445-456.
- Jose A. Lopez & Marc R. Saidenberg, 1999.
"Evaluating credit risk models,"
Working Papers in Applied Economic Theory
99-06, Federal Reserve Bank of San Francisco.
- William E. Nganje & Mounir Siaplay & Simeon Kaitibie & Emmanuel T. Acquah, 2006. "Predicting food safety losses in turkey processing and the economic incentives of hazard analysis and critical control point (HACCP) intervention," Agribusiness, John Wiley & Sons, Ltd., vol. 22(4), pages 475-489.
- Stephanos Papadamou & George Stephanides, 2004. "Evaluating the style-based risk model for equity mutual funds investing in Europe," Applied Financial Economics, Taylor & Francis Journals, vol. 14(10), pages 751-760.
- 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.).
- Manfredo, Mark R. & Leuthold, Raymond M., 1999. "Measuring Market Risk Of The Cattle Feeding Margin: An Application Of Value-At-Risk Analysis," 1999 Annual meeting, August 8-11, Nashville, TN 21628, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber).
If references are entirely missing, you can add them using this form.