Measurement of the displaced commercial risk in Islamic Banks
Kaouther Toumi (),
Jean-Laurent Viviani () and
Zeinab Chayeh ()
Additional contact information
Kaouther Toumi: LGCO - Laboratoire Gouvernance et Contrôle Organisationnel - UPS - Université Toulouse III - Paul Sabatier - Université Fédérale Toulouse Midi-Pyrénées
Jean-Laurent Viviani: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Zeinab Chayeh: U. Paris 6 - Université Pierre & Marie Curie - Paris 6
Post-Print from HAL
Highlights We identify the displaced commercial risk DCR exposure of Islamic banks. We identify the scenarios of displaced commercial risk exposure to compute the DCR Profits and Losses to Islamic banks shareholders. Scenarios of risk depend on the actual rate of return on investment accounts, the benchmark rate of return and level of existing reserves to mitigate the DCR. We assess the capital charge needed to cover the displaced commercial risk using the Value-at-risk measure of risk, DCR-VaR. We assess the coefficient alpha α CAR-VaR for the capital adequacy ratio for Islamic banks. We consider three methods, the Historical non-parametric VaR, the parametric-VaR and the Extreme Value Theory-VaR. Abstract The objective of the research is to quantify the displaced commercial risk (DCR) based on quantitative finance techniques. We develop an internal model based on the Value-at-risk (VaR) measure of risk to assess the DCR-VaR and the alpha coefficient in the capital adequacy ratio of Islamic banks. We identify first the scenarios of exposure of Islamic banks to DCR that depend on the actual return on unrestricted profit sharing investment accounts (PSIA U), the benchmark return as well as the level of the existing profit equalization reserve (PER) and investment risk reserve (IRR). Second, we quantify the DCR-VaR and the alpha coefficient for a given holding period and for given confidence level. We illustrate the DCR-VaR model on selected Islamic banks from Bahrain. Our model helps to better assess the needed equity to cover the DCR and an accurate capital adequacy ratio for Islamic banks. The model has also policy implications for regulators and the IFSB to develop better guidance on good practices in managing this risk.
Keywords: Displaced commercial risk; Value-at-risk; Extreme value theory; Profit equalization reserve; Investment risk reserve; Capital adequacy ratio (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-isf and nep-rmg
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01806496
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Published in Quarterly Review of Economics and Finance, Elsevier, 2018, 〈10.1016/j.qref.2018.03.001〉
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01806496
Access Statistics for this paper
More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().