Choosing a proper external risk measure is of great regulatory importance, as exemplified in the Basel II and Basel III … Accord which use Value-at-Risk (VaR) with scenario analysis as the risk measures for setting capital requirements. We argue a … good external risk measure should be robust with respect to model misspecification and small changes in the data. A new …

the Fundamental Review of the Trading Book. Under the new standards, default risk needs to be measured and capitalized … through a dedicated Default Risk Charge (DRC). While quantitative impact studies are ongoing and banks are preparing for these …-year capital horizon at a 99.9% confidence level. The article discusses selected risk factor models to derive simulation-based loss …

This paper presents a modelling framework for the Incremental Risk Charge (IRC) and Comprehensive Risk Measure (CRM) as … the new capital requirements for market risks in a bank’s trading book ("Basel 2.5"). Both are Value-at-Risk-type measures … discusses selected risk factor models to derive simulation-based loss distributions and the associated risk figures. Example …

Regulatory capital requirements for market risk, also known as the Fundamental Review of the Trading Book (FRTB), were … disclosed by the Basel Committee on January 2016. This major overhaul of the Basel 2.5 framework challenges risk model … the regulatory benchmarking of internal risk models. We show a trade-off between the resilience of risk models to periods …

systemic risk contribution. We argue for macro-prudential regulation based on the degree to which such characteristics forecast …We propose a measure for systemic risk: CoVaR, the value at risk (VaR) of financial institutions conditional on other … institutions being in distress. We define an institution’s (marginal) contribution to systemic risk as the difference between CoVaR …

Within the context of risk integration, we introduce in risk measurement stochastic holding period (SHP) models. This … is done in order to obtain a 'liquidity-adjusted risk measure' characterized by the absence of a fixed time horizon. The …

In line with regulations and common risk management practice, the credit risk of a portfolio is managed via its … computations to exposure computations, firms find it expedient to compute these exposures under the risk neutral measure.Here we … show that exposures computed under the risk neutral measure are essentially arbitrary. They depend on the choice of …

The Value-at-Risk (VaR) risk measure has been widely used in finance and insurance for capital and risk management … VaR does not in general have all the four coherence properties which are desirable for a risk measure. In particular, the … violation of the sub-additive property discourages diversification and is counter-intuitive to risk finance. In this paper, it …

This paper attempts to provide a decision-theoretic foundation for the measurement of economic tail risk, which is not … risk measures that satisfy a set of economic axioms for the Choquet expected utility and the statistical property of … elicitability (i.e. there exists an objective function such that minimizing the expected objective function yields the risk measure …