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The price risk of options positions: measurement and capital requirements

Author

Listed:
  • Arturo Estrella
  • Darryll Hendricks
  • John Kambhu
  • Soo Shin
  • Stefan Walter

Abstract

This article evaluates supervisory approaches to the measurement and capital treatment of the price risk of options positions. The authors find that approximate value-at-risk rules tend to provide better estimates of potential losses than simple strategy-based rules. The value-at-risk rules are particularly effective when they adjust for nonlinear changes in options prices. The authors also consider the reporting burdens posed by the different approaches and the consistency of the rules with existing and proposed supervisory frameworks.

Suggested Citation

  • Arturo Estrella & Darryll Hendricks & John Kambhu & Soo Shin & Stefan Walter, 1994. "The price risk of options positions: measurement and capital requirements," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 44-75.
  • Handle: RePEc:fip:fednqr:y:1994:i:sum:p:44-75:n:v.19no.2
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    Cited by:

    1. Beate Reszat, 1997. "Sources of increasing systemic risk in international financial markets," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 32(5), pages 211-219, September.
    2. Vlaar, Peter J. G., 2000. "Value at risk models for Dutch bond portfolios," Journal of Banking & Finance, Elsevier, vol. 24(7), pages 1131-1154, July.

    More about this item

    Keywords

    Options (Finance) ; Risk;

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