Following the recent global financial crisis, regulators have recognized the importance of stress testing, in part due to the impact of model risk, and have implemented supervisory requirements in both the revised Basel framework and the Comprehensive Capital Analysis and Review (CCAR) program....

This article examines the impact of the new supervisory standards of Basel 2.5 and Basel III for bank trading portfolios with regards to the additional capital requirements developed to mitigate liquidity risk and credit risk. Using the incremental risk charge (IRC), the authors estimate risk...

Recent research provides considerable evidence that correlations between assets change significantly over time and diversification benefits of correlations may vary substantially based on the time-varying measure of correlation used for different asset types. Our study evaluates and compares...