Journal
INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE
Volume 9, Issue 2, Pages 217-226Publisher
WORLD SCIENTIFIC PUBL CO PTE LTD
DOI: 10.1142/S0219024906003548
Keywords
Value-at-Risk; Basel Committee; Extreme Value Theory; historical simulation
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The broad spectrum and the increased complexity of financial products that compose modern portfolios have forced credit and financial institutions to focus on innovative and more effective ways of estimating market risks. These new approaches, very often, prove to be more conservative compared to traditional approaches in terms of market risk quantification. On the other hand, according to the Basel Committee evaluation framework, this conservatism is rewarded with lower multiplication factors when calculations of capital requirements take place. The present study elaborates on the comparison of several Value-at-Risk (VaR) methodologies based on the capital requirements they provide according to the Basel Committee regulatory framework.
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