IDEAS home Printed from https://ideas.repec.org/p/cbi/wpaper/7-rt-96.html
   My bibliography  Save this paper

Market Risk: An introduction to the concept & analytics of Value-at-risk

Author

Listed:
  • Frain, John

    (Central Bank and Financial Services Authority of Ireland)

  • Meegan, Conor

    (Central Bank and Financial Services Authority of Ireland)

Abstract

In recent years the concept of Value-at-risk has achieved prominence among risk managers for the purpose of market risk measurement and control. Spurred by the increasing complexity and volume of trade in derivatives, and by the numerous headline cases of institutions sustaining enormous losses from their derivatives activities, risk managers have acknowledged the need for a unified risk measurement and management strategy. Furthermore, the regulatory authorities, recognising the systemic threat posed by the growth and complexity of derivatives trading, moved swiftly to address this problem. As a result, the European Union approved EC/93/6, "The Capital Adequacy Directive", which mandates financial institutions to quantify and measure risk on an aggregate basis and to set aside capital to cover potential losses which might accrue from their market positions. More recently, the Basle committee of the BIS published an amendment to the "Capital Accord" which makes provision for the use of proprietary in-house models to be employed instead of the original framework. The proposed basis of these in-house models is the value-at-risk framework. In this paper, we present an introductory exposition to the concept of Value-at-risk describing, among other things, the methods commonly employed in its calculation, and a brief critique of each.

Suggested Citation

  • Frain, John & Meegan, Conor, 1996. "Market Risk: An introduction to the concept & analytics of Value-at-risk," Research Technical Papers 7/RT/96, Central Bank of Ireland.
  • Handle: RePEc:cbi:wpaper:7/rt/96
    as

    Download full text from publisher

    File URL: https://centralbank.ie/docs/default-source/publications/research-technical-papers/07rt96---market-risk-an-introduction-to-the-concept-analytics-of-value-at-risk-(frain-and-meegan).pdf?sfvrsn=4
    Download Restriction: no

    References listed on IDEAS

    as
    1. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    2. Panayiotis Theodossiou & Unro Lee, 1993. "Mean And Volatility Spillovers Across Major National Stock Markets: Further Empirical Evidence," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(4), pages 337-350, December.
    3. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters,in: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78 World Scientific Publishing Co. Pte. Ltd..
    4. Westerfield, Janice Moulton, 1977. "An examination of foreign exchange risk under fixed and floating rate regimes," Journal of International Economics, Elsevier, vol. 7(2), pages 181-200, May.
    5. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. John C. Frain, 2008. "Value at Risk (VaR) and the alpha-stable distribution," Trinity Economics Papers tep0308, Trinity College Dublin, Department of Economics, revised May 2008.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbi:wpaper:7/rt/96. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fiona Farrelly). General contact details of provider: http://edirc.repec.org/data/cbigvie.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.