Comparison of market risk models with respect to suggested changes of Basel Accord

Eliška Stiborová, Barbora Sznapková and Tomáš Tichý ()
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Eliška Stiborová: Technical University Ostrava, Department of Finance, Faculty of Economics, Sokolská 33 701 21 Ostrava, Czech Republic
Barbora Sznapková: Technical University Ostrava, Department of Finance, Faculty of Economics, Sokolská 33 701 21 Ostrava, Czech Republic
Tomáš Tichý: Technical University Ostrava, Department of Finance, Faculty of Economics, Sokolská 33 701 21 Ostrava, Czech Republic

Acta Oeconomica, 2014, vol. 64, issue supplement2, 257-274

Abstract: The market risk capital charge of financial institutions has been mostly calculated by internal models based on integrated Value at Risk (VaR) approach, since the introduction of the Amendment to Basel Accord in 1996. The internal models should fulfil several quantitative and qualitative criteria. Besides others, it is the so called backtesting procedure, which was one of the main reasons why the alternative approach to market risk estimation — conditional Value at Risk or Expected Shortfall (ES) — were not applicable for the purpose of capital charge calculation. However, it is supposed that this approach will be incorporated into Basel III. In this paper we provide an extensive simulation study using various sets of market data to show potential impact of ES on capital requirements.

Keywords: backtesting; expected shortfall; market risk; value at risk (search for similar items in EconPapers)
Date: 2014
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