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On the necessity of five risk measures

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  • Dominique Guegan

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Wayne Tarrant

    ()
    (Wingate University - Department of Mathematics)

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    Abstract

    The banking systems that deal with risk management depend on underlying risk measures. Following the recommendation of the Basel II accord, most banks have developed internal models to determine their capital requirement. The Value at Risk measure plays an important role in computing this capital. In this paper we analyze in detail the errors produced by use of this measure. We then discuss other measures, pointing out their strengths and shortcomings. We give detailed examples, showing the need for five risk measures in order to compute a capital in relation to the risk to which the bank is exposed. In the end, we suggest using five different risk measures for computing capital requirements.

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    Bibliographic Info

    Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00460901.

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    Date of creation: Jan 2010
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    Handle: RePEc:hal:cesptp:halshs-00460901

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00460901
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    Related research

    Keywords: Risk measure ; Value at Risk ; Bank capital ; Basel II Accord;

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