Proposals for a Needed Adjustment of the VaR-based Market Risk Charge of Basle II
We analyze around 200 different financial time series, i.e. components of Dow Jones, Nasdaq, FTSE and Nikkei with seven different VaR approaches. We differentiate our analysis according to characteristics that can be observed. Our analysis shows that in high risk situations in which the time series show high volatility risk and high fat tail risk the current Basle II guidelines fail in the attempt to cushion against large losses by higher capital requirements. One of the factors causing this problem is that the builtin positive incentive of the penalty factor resulting from the Basle II backtesting is set too weak. Therefore, we propose adjustments regarding the Basle II penalty factor that take different risk situations into account and lead to higher capital buffers for forecast models with a systematic risk underestimation.
|Date of creation:||07 Jul 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Rolandstrasse 8, 49069 Osnabrueck|
Web page: http://www.iew.uni-osnabrueck.de/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:iee:wpaper:wp0078. 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: (Arjeta Gringmuth)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.