Regulatory evaluation of value-at-risk models

Jose Lopez

No 9710, Research Paper from Federal Reserve Bank of New York

Abstract: Beginning in 1998, commercial banks may determine their regulatory capital requirements for market risk exposure using value-at-risk (VaR) models; i.e., time-series models of the distributions of portfolio returns. Currently, regulators have available three statistical methods for evaluating the accuracy of VaR models: the binomial method, the interval forecast method, and the distribution forecast method. These methods test whether the VaR forecasts in question exhibit properties characteristics of accurate VaR forecasts. However, the statistical tests can have low power against alternative models. A new evaluation method, based on proper scoring rules for probability forecasts, is proposed. Simulation results indicate that this method is clearly capable of differentiating among accurate and alternative VaR models.

Keywords: Econometric models; Risk; Bank capital (search for similar items in EconPapers)
Date: 1997
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/rese ... arch_papers/9710.pdf (application/pdf)
https://www.newyorkfed.org/medialibrary/media/rese ... rch_papers/9710.html (text/html)

Related works:
Working Paper: Regulatory evaluation of value-at-risk models (1997)
Working Paper: Regulatory Evaluation of Value-at-Risk Models (1996)
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:fip:fednrp:9710

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Research Paper from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().