Econometric Models Used For Managing The Market Risk In The Romanian Banking System
Taking into account that one of the most important factors which have caused the financial crisis was the bad risk management practices in banks we want to confirm the need to develop more efficient risk management practices. The fact that return distributions are characterized by time varying vola- tility poses some challenges in the estimation, especially in the period of severe financial crisis. In order to remedy this problem we propose the Extreme Value Theory as an alternative to VaR for quan- tifying the banks’ exposures to interest rate risk. EVT models are more robust to fat-tailedness in the conditional distribution of returns and are preferred in the modeling of interest rate risk in periods with extreme variations. Finally, we assess the performance of the model analyzing the interest rate risk on the Romanian inter-bank market by measures that address its conservativeness, accuracy and efficiency, in the context of Basel II principles.
Volume (Year): 2011SE (2011)
Issue (Month): (july)
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- Hasan, Iftekhar & Zazzara, Cristiano, 2006. "Pricing risky bank loans in the new Basel II environment," Research Discussion Papers 3/2006, Bank of Finland.
- Dowd, Kevin, 2000. "Adjusting for risk:: An improved Sharpe ratio," International Review of Economics & Finance, Elsevier, vol. 9(3), pages 209-222, July.
- Julia Schaumburg, 2010. "Predicting extreme VaR: Nonparametric quantile regression with refinements from extreme value theory," SFB 649 Discussion Papers SFB649DP2010-009, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- McNeil, Alexander J. & Frey, Rudiger, 2000. "Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 271-300, November.
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