DOES THE APPLICATION OF INNOVATIVE INTERNAL MODELS DIMINISH REGULATORY CAPITAL?

Lampros Kalyvas () and Athanasios Sfetsos ()
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Lampros Kalyvas: Bank of Greece, Department for the Supervision of Credit and Financial Institutions, Risk Analysis and Supervisory Techniques Division, 3, Amerikis Str., 10564, Athens, Greece
Athanasios Sfetsos: EREL, INT-RP, NCSR Demokritos, Patr. Grigoriou & Neapoleos, 15310, Agia Paraskevi, Greece

International Journal of Theoretical and Applied Finance (IJTAF), 2006, vol. 09, issue 02, 217-226

Abstract: 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.

Keywords: Value-at-Risk; Basel Committee; Extreme Value Theory; historical simulation (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219024906003548

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