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Article: Market risk management of banks: Implications from the accuracy of value-at-risk forecasts

TitleMarket risk management of banks: Implications from the accuracy of value-at-risk forecasts
Authors
KeywordsBank Management
Capital Requirement
Garch Models
Risk Management
Value-At-Risk
Issue Date2003
PublisherJohn Wiley & Sons Ltd. The Journal's web site is located at http://www3.interscience.wiley.com/cgi-bin/jhome/2966
Citation
Journal Of Forecasting, 2003, v. 22 n. 1, p. 23-33 How to Cite?
AbstractThis paper adopts the backtesting criteria of the Basle Committee to compare the performance of a number of simple Value-at-Risk (VAR) models. These criteria provide a new standard on forecasting accuracy. Currently central banks in major money centres, under the auspices of the Basle Committee of the Bank of International settlement, adopt the VaR system to evaluate the market risk of their supervised banks. Banks are required to report VaRs to bank regulators with their internal models. These models must comply with Basle's backtesting criteria. If a bank fails the VaR backtesting, higher capital requirements will be imposed. VaR is a function of volatility forecasts. Past studies mostly conclude that ARCH and GARCH models provide better volatility forecasts. However, this paper finds that ARCH- and GARCH-based VaR models consistently fail to meet Basle's backtesting criteria. These findings suggest that the use of ARCH- and GARCH-based models to forecast their VARs is not a reliable way to manage a bank's market risk. Copyright © 2003 John Wiley & Sons, Ltd.
Persistent Identifierhttp://hdl.handle.net/10722/177697
ISSN
2015 Impact Factor: 0.818
2015 SCImago Journal Rankings: 0.706
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorWong, MCSen_US
dc.contributor.authorCheng, WYen_US
dc.contributor.authorWong, CYPen_US
dc.date.accessioned2012-12-19T09:39:34Z-
dc.date.available2012-12-19T09:39:34Z-
dc.date.issued2003en_US
dc.identifier.citationJournal Of Forecasting, 2003, v. 22 n. 1, p. 23-33en_US
dc.identifier.issn0277-6693en_US
dc.identifier.urihttp://hdl.handle.net/10722/177697-
dc.description.abstractThis paper adopts the backtesting criteria of the Basle Committee to compare the performance of a number of simple Value-at-Risk (VAR) models. These criteria provide a new standard on forecasting accuracy. Currently central banks in major money centres, under the auspices of the Basle Committee of the Bank of International settlement, adopt the VaR system to evaluate the market risk of their supervised banks. Banks are required to report VaRs to bank regulators with their internal models. These models must comply with Basle's backtesting criteria. If a bank fails the VaR backtesting, higher capital requirements will be imposed. VaR is a function of volatility forecasts. Past studies mostly conclude that ARCH and GARCH models provide better volatility forecasts. However, this paper finds that ARCH- and GARCH-based VaR models consistently fail to meet Basle's backtesting criteria. These findings suggest that the use of ARCH- and GARCH-based models to forecast their VARs is not a reliable way to manage a bank's market risk. Copyright © 2003 John Wiley & Sons, Ltd.en_US
dc.languageengen_US
dc.publisherJohn Wiley & Sons Ltd. The Journal's web site is located at http://www3.interscience.wiley.com/cgi-bin/jhome/2966en_US
dc.relation.ispartofJournal of Forecastingen_US
dc.subjectBank Managementen_US
dc.subjectCapital Requirementen_US
dc.subjectGarch Modelsen_US
dc.subjectRisk Managementen_US
dc.subjectValue-At-Risken_US
dc.titleMarket risk management of banks: Implications from the accuracy of value-at-risk forecastsen_US
dc.typeArticleen_US
dc.identifier.emailWong, CYP: ypclemw@hku.hken_US
dc.identifier.authorityWong, CYP=rp01109en_US
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.doi10.1002/for.842en_US
dc.identifier.scopuseid_2-s2.0-0037275344en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-0037275344&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume22en_US
dc.identifier.issue1en_US
dc.identifier.spage23en_US
dc.identifier.epage33en_US
dc.identifier.isiWOS:000180814900002-
dc.publisher.placeUnited Kingdomen_US
dc.identifier.scopusauthoridWong, MCS=26435612300en_US
dc.identifier.scopusauthoridCheng, WY=8706547800en_US
dc.identifier.scopusauthoridWong, CYP=8902584200en_US

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