Choosing expected shortfall over VaR in Basel III using stochastic dominance

Chia-Lin Chang (), Juan Jimenez-Martin, Esfandiar Maasoumi, Michael McAleer and Teodosio Pérez-Amaral

International Review of Economics & Finance, 2019, vol. 60, issue C, 95-113

Abstract: In this paper we use stochastic dominance to evaluate the consequences of moving from Value-at-Risk (VaR) to Expected Shortfall (ES) from a policy maker's perspective. In particular, we compare VaR at the 99% level (VaR99) and ES at the 97.5% level (ES97.5). We contemplate VaR99 and ES97.5 as two alternative risk metrics according to the capital adequacy bank regulation, as suggested by Basel III. Moving from VaR99 to ES97.5 will have effects in terms of the quantity and quality of the capital required to banks. According to the Basel Committee on Banking Supervision (2013, page 18):

Keywords: Stochastic dominance; Value-at-Risk; Expected shortfall; Basel III accord; Daily capital charges (search for similar items in EconPapers)
JEL-codes: C22 C53 G11 G17 G32 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056018301072
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Choosing Expected Shortfall over VaR in Basel III Using Stochastic Dominance (2015)
Working Paper: Choosing Expected Shortfall over VaR in Basel III Using Stochastic Dominance (2015)
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:reveco:v:60:y:2019:i:c:p:95-113

DOI: 10.1016/j.iref.2018.12.016

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().