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An Academic Response to Basel 3.5

Paul Embrechts (), Giovanni Puccetti (), Ludger Rüschendorf (), Ruodu Wang () and Antonela Beleraj ()
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Paul Embrechts: RiskLab and SFI, Department of Mathematics, ETH Zurich, Zurich 8092, Switzerland
Ludger Rüschendorf: Department of Mathematical Stochastics, University of Freiburg, Freiburg 79104, Germany
Ruodu Wang: Department of Statistics and Actuarial Science, University of Waterloo, Waterloo, ON N2L 3G1, Canada
Antonela Beleraj: School of Economics and Management, University of Firenze, Firenze 50127, Italy

Risks, 2014, vol. 2, issue 1, 1-24

Abstract: Recent crises in the financial industry have shown weaknesses in the modeling of Risk-Weighted Assets (RWAs). Relatively minor model changes may lead to substantial changes in the RWA numbers. Similar problems are encountered in the Value-at-Risk (VaR)-aggregation of risks. In this article, we highlight some of the underlying issues, both methodologically, as well as through examples. In particular, we frame this discussion in the context of two recent regulatory documents we refer to as Basel 3.5.

Keywords: Basel 3.5; risk-weighted assets; Value-at-Risk; expected shortfall; model uncertainty; robustness; backtesting (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 M2 M4 K2 (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:gam:jrisks:v:2:y:2014:i:1:p:25-48:d:33505