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Comparative Analysis of VaR Models Aplicability in the Evaluation of Exchange Rate Risk in the B&H Banking Sector

Author

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  • Emina Kozarevic

    (University of Tuzla, Faculty of Economics)

Abstract

In this paper the author tests a variety of market VaR models for evaluation of exposure to exchange rate risk, in order to illuminate the advantages and disadvantages of their implementation in the B&H banking sector. As known, B&H monetary policy operates on the basis of currency board arrangement. The selection of a particular VaR model is determined with the fact that income generated from taking the risk should always exceed the cost of keeping capital reserves needed to cover taken risks. In the concrete bank three VaR models are applied and comparation of the results is done.

Suggested Citation

  • Emina Kozarevic, 2010. "Comparative Analysis of VaR Models Aplicability in the Evaluation of Exchange Rate Risk in the B&H Banking Sector," Economic Analysis, Institute of Economic Sciences, vol. 43(3-4), pages 29-41.
  • Handle: RePEc:ibg:eajour:v:43:y:2010:i:3-4:p:29-41
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    Keywords

    Eexchange rate risk; evaluation; bootstrapping; RiskMetricsTM; Monte Carlo simulation for VaR;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other

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