Risk models-at-risk

Christophe M. Boucher, Jon Danielsson, Patrick S. Kouontchou and Bertrand Maillet

Journal of Banking & Finance, 2014, vol. 44, issue C, 72-92

Abstract: The experience from the global financial crisis has raised serious concerns about the accuracy of standard risk measures as tools for the quantification of extreme downward risks. A key reason for this is that risk measures are subject to a model risk due, e.g. to specification and estimation uncertainty. While regulators have proposed that financial institutions assess the model risk, there is no accepted approach for computing such a risk. We propose a remedy for this by a general framework for the computation of risk measures robust to model risk by empirically adjusting the imperfect risk forecasts by outcomes from backtesting frameworks, considering the desirable quality of VaR models such as the frequency, independence and magnitude of violations. We also provide a fair comparison between the main risk models using the same metric that corresponds to model risk required corrections.

Keywords: Model risk; Value-at-risk; Backtesting (search for similar items in EconPapers)
JEL-codes: C50 G11 G32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426614001022
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Risk models–at–risk (2014)
Working Paper: Risk models-at-risk (2014)
Working Paper: Risk Model-at-Risk (2014)
Working Paper: Risk models-at-risk (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:44:y:2014:i:c:p:72-92

DOI: 10.1016/j.jbankfin.2014.03.019

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().