Econometric Models Used For Managing The Market Risk In The Romanian Banking System

Ioan Trenca, Simona Mutu (simona.mutu@ubbcluj.ro) and Nicolae Petria
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Simona Mutu: Faculty of Economics and Business Administration Babeş-Bolyai University Cluj-Napoca, Romania

Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice (1954-2015), 2011, vol. 2011SE, 115-123

Abstract: Taking into account that one of the most important factors which have caused the financial crisis was the bad risk management practices in banks we want to confirm the need to develop more efficient risk management practices. The fact that return distributions are characterized by time varying vola- tility poses some challenges in the estimation, especially in the period of severe financial crisis. In order to remedy this problem we propose the Extreme Value Theory as an alternative to VaR for quan- tifying the banks’ exposures to interest rate risk. EVT models are more robust to fat-tailedness in the conditional distribution of returns and are preferred in the modeling of interest rate risk in periods with extreme variations. Finally, we assess the performance of the model analyzing the interest rate risk on the Romanian inter-bank market by measures that address its conservativeness, accuracy and efficiency, in the context of Basel II principles.

Keywords: value at risk; time varying volatility; interest rate risk; extreme value theory (search for similar items in EconPapers)
JEL-codes: C14 C15 C22 G01 G21 G32 (search for similar items in EconPapers)
Date: 2011
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