Fifteen years after the introduction of the Basel II Accord, which thoroughly revised the capital framework for banks, internal models are a full part of the supervisory toolkit and the risk management framework of financial institutions. The debate around models has gone through different...

In many standard derivation and presentations of risk measures like the Value-at-Risk or the Expected Shortfall, it is assumed that all the model's parameters are known. In practice, however, the parameters must be estimated and this introduces an additional source of uncertainty that is usually...

Stress tests have become a key tool for banks, supervisors and macro prudential authorities. An aspect of these exercises is the need for statistical models to obtain risk measurements under an adverse scenario and a fundamental question is who should develop such models. If models are developed...

The level of capital requirement generated by the IRB approach depends crucially on the asset correlation, a parameter that enters the regulatory risk weight formula and is determined by the Regulators. Several studies have estimated the asset correlations and found that the empirical values are...