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An Academic Response to Basel 3.5

Author

Listed:
  • Paul Embrechts

    () (RiskLab and SFI, Department of Mathematics, ETH Zurich, Zurich 8092, Switzerland)

  • Giovanni Puccetti

    () (School of Economics and Management, University of Firenze, Firenze 50127, Italy)

  • Ludger Rüschendorf

    () (Department of Mathematical Stochastics, University of Freiburg, Freiburg 79104, Germany)

  • Ruodu Wang

    () (Department of Statistics and Actuarial Science, University of Waterloo, Waterloo, ON N2L 3G1, Canada)

  • Antonela Beleraj

    () (School of Economics and Management, University of Firenze, Firenze 50127, Italy)

Abstract

Recent crises in the financial industry have shown weaknesses in the modeling of Risk-Weighted Assets (RWAs). Relatively minor model changes may lead to substantial changes in the RWA numbers. Similar problems are encountered in the Value-at-Risk (VaR)-aggregation of risks. In this article, we highlight some of the underlying issues, both methodologically, as well as through examples. In particular, we frame this discussion in the context of two recent regulatory documents we refer to as Basel 3.5.

Suggested Citation

  • Paul Embrechts & Giovanni Puccetti & Ludger Rüschendorf & Ruodu Wang & Antonela Beleraj, 2014. "An Academic Response to Basel 3.5," Risks, MDPI, Open Access Journal, vol. 2(1), pages 1-24, February.
  • Handle: RePEc:gam:jrisks:v:2:y:2014:i:1:p:25-48:d:33505
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Basel 3.5; risk-weighted assets; Value-at-Risk; expected shortfall; model uncertainty; robustness; backtesting;
    All these keywords.

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • K2 - Law and Economics - - Regulation and Business Law

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