On the Necessity of Five Risk Measures
AbstractThe 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 InfoPaper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00721339.
Date of creation: Nov 2012
Date of revision:
Publication status: Published, Annals of Finance, 2012, 8, 4, 533-552
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Risk measure; Value at Risk; Bank capital; Basel II Accord;
Other versions of this item:
- Dominique Guegan & Wayne Tarrant, 2010. "On the necessity of five risk measures," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00460901, HAL.
- Dominique Guegan & Wayne Tarrant, 2010. "On the necessity of five risk measures," Documents de travail du Centre d'Economie de la Sorbonne, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 10005, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-BAN-2012-08-23 (Banking)
- NEP-FMK-2012-08-23 (Financial Markets)
- NEP-RMG-2012-08-23 (Risk Management)
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UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers)
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