Journal ArticleDOI
Value-at-Risk: Implementing a Risk Measurement Standard
TLDR
The extent to which one particular model of risk can be effectively specified in advance, independent of the model's detailed implementation and use in practice is indicated.Abstract:
In the wake of recent failures of risk management, there has been a widespread call for improved quantification of the financial risks facing firms. At the forefront of this clamor has been Value at Risk. Previous research has identified differences in models, or Model Risk, as an important impediment to developing a Value at Risk standard. By contrast, this paper considers the divergence in a model's implementation in software and how it too, affects the establishment of a risk measurement standard. Different leading risk management systems' vendors were given identical portfolios of instruments of varying complexity, and were asked to assess the value at risk according to one common model, J.P. Morgan's RiskMetrics. We analyzed the VaR results on a case by case basis, and in terms of prior expectations from the structure of financial instruments in the portfolio, as well as prior vendor expectations about the relative complexity of different asset classes. It follows that this research indicates the extent to which one particular model of risk can be effectively specified in advance, independent of the model's detailed implementation and use in practice.read more
Citations
More filters
Journal ArticleDOI
An Overview of Value at Risk
Darrell Duffie,Jun Pan +1 more
TL;DR: In this article, a broad and accessible overview of models of value at risk (WR), a popular measure o f the market risk of a financial firm's book, the list of positions in various instruments that expose the firm to financial risk, is presented.
Journal ArticleDOI
How Accurate Are Value-at-Risk Models at Commercial Banks?
TL;DR: In this paper, the authors evaluate the performance of banks' trading risk models by examining the statistical accuracy of the Value-at-Risk (VaR) forecasts internally estimated by banks.
Book
Measuring Market Risk
TL;DR: In this paper, the authors proposed a mean-variance framework for measuring financial risk, which is used to measure the value at risk and the coherent risk measures in financial markets.
Book
Elements of Financial Risk Management
TL;DR: Elements of Financial Risk Management as mentioned in this paper offers an introduction to modern risk management, especially recent techniques which facilitate bridging the gap between standard textbooks on risk and real-life risk management systems.
Journal ArticleDOI
Backtesting Value-at-Risk: A Duration-Based Approach
TL;DR: In this paper, the authors explore a new tool for backtesting based on the duration of days between the violations of the value-at-risk (VaR) model, which is defined as a conditional quantile of the return distribution, and it says nothing about the shape of the tail to the left of the quantile.
References
More filters
Posted Content
An Almost Ideal Demand System
TL;DR: The Almost Ideal Demand System (AIDS) as mentioned in this paper is a first-order approximation of the Rotterdam and translog models, which has been used to test the homogeneity and symmetry restrictions of demand analysis.
Posted Content
Deposit insurance, risk, and market power in banking
TL;DR: In this paper, the authors address the puzzle of why major problems began to arise in the early 1980s and not sooner and propose a hypothesis that increases in competition caused bank charter values to decline, which, in turn, caused banks to increase default risk through increases in asset risk and reductions in capital.
Journal ArticleDOI
Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?
TL;DR: This article examined several possible sources, including differences in efficiency concept, measurement method, and a number of bank, market, and regulatory characteristics, and provided new evidence using data on US banks over the period 1990-1995.
Journal ArticleDOI
Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry
TL;DR: This paper examined a new database that details corporate risk management activity in the North American gold mining industry and found little empirical support for the predictive power of theories that view risk management as a means to maximize shareholder value.
Posted ContentDOI
The Role of Demandable Debt in Structuring Optimal Banking Arrangements
TL;DR: Demandable-debt finance by banks warrants explanation because it entails costs of bank suspension, liquidation, and idle reserve holdings as mentioned in this paper, and an explanation is developed in which demandable debt provides incentive-compatible intermediation where the banker has comparative advantage in allocating investment funds but may act against the interests of uninformed depositors.