Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87376
Authors: 
McAleer, Michael
Jiménez-Martín, Juan-Ángel
Pérez-Amaral, Teodosio
Year of Publication: 
2013
Series/Report no.: 
Tinbergen Institute Discussion Paper 13-010/III
Abstract: 
The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. In this paper we define risk management in terms of choosing from a variety of risk models, and discuss the selection of optimal risk models. A new approach to model selection for predicting VaR is proposed, consisting of combining alternative risk models, and we compare conservative and aggressive strategies for choosing between VaR models. We then examine how different risk management strategies performed during the 2008-09 global financial crisis. These issues are illustrated using Standard and Poor’s 500 Composite Index.
Subjects: 
Value-at-Risk (VaR)
daily capital charges
violation penalties
optimizing strategy
risk forecasts
aggressive or conservative risk management strategies
Basel Accord
global financial crisis
JEL: 
G32
G11
G17
C53
C22
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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