The Experts below are selected from a list of 2466 Experts worldwide ranked by ideXlab platform
Michael Mcaleer - One of the best experts on this subject based on the ideXlab platform.
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It pays to Violate: Model Choice and Critical Value Assumption for Forecasting Value-at-Risk Thresholds
2020Co-Authors: Bernardo Da Veiga, Felix Chan, Michael McaleerAbstract:The internals models amendment to the Basel Accord allows banks to use internal models to forecast Value-at-Risk (VaR) thresholds which are used to calculate the required capital banks must hold in reserves as a protection against negative changes in the value of their trading portfolios. As capital reserves lead to an opportunity cost to banks it is likely that banks could be temped to use models that underpredict risk and hence lead to low capital charges. In order to avoid this problem the Basel Accord introduced backtesting procedure whereby banks using models that led to excessive violations would be penalised through higher capital chares. This paper investigates the performance of five popular volatility models that can be used to forecast VaR thresholds under a variety of distributional assumptions. The results suggest that within the current constraints and penalty structure set out in the Basel Accord the lowest capital charges arise when using models that lead to excessive violations, suggesting the current penalty structure is not severe enough.
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has the Basel Accord improved risk management during the global financial crisis
The North American Journal of Economics and Finance, 2013Co-Authors: Michael Mcaleer, Juanangel Jimenezmartin, Teodosio PerezamaralAbstract:The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. In this paper we define risk management in terms of choosing from a variety of risk models, and discuss the selection of optimal risk models. A new approach to model selection for predicting VaR is proposed, consisting of combining alternative risk models, and we compare conservative and aggressive strategies for choosing between VaR models. We then examine how different risk management strategies performed during the 2008–09 global financial crisis. These issues are illustrated using Standard and Poor's 500 Composite Index.
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original article gfc robust risk management under the Basel Accord using extreme value methodologies
Mathematics and Computers in Simulation, 2013Co-Authors: Juanangel Jimenezmartin, Michael Mcaleer, Teodosio Perezamaral, Paulo Araujo SantosAbstract:In this paper we provide further evidence on the suitability of the median of the point VaR forecasts of a set of models as a GFC-robust strategy by using an additional set of new extreme value forecasting models and by extending the sample period for comparison. The median is not affected by extremes, unlike the mean. In periods of contagion, wherein the number and values of extremes are substantially greater, the use of the median would be expected to be even more robust than the mean. These extreme value models include DPOT and Conditional EVT. Such models might be expected to be useful in explaining financial data, especially in the presence of extreme shocks that arise during a GFC. Our empirical results confirm that the median remains GFC-robust even in the presence of these new extreme value models. This is illustrated by using the S&P500 index before, during and after the 2008-2009 GFC. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria, including several tests for independence of the violations. The strategy based on the median, or more generally, on combined forecasts of single models, is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.
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gfc robust risk management strategies under the Basel Accord
International Review of Economics & Finance, 2013Co-Authors: Michael Mcaleer, Juanangel Jimenezmartin, Teodosio PerezamaralAbstract:A risk management strategy is proposed as being robust to the Global Financial Crisis (GFC) by selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models. The robust forecast is based on the median of the point VaR forecasts of a set of conditional volatility models. This risk management strategy is GFC-robust in the sense that maintaining the same risk management strategies before, during and after a financial crisis would lead to comparatively low daily capital charges and violation penalties. The new method is illustrated by using the S&P500 index before, during and after the 2008–09 global financial crisis. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria. The median VaR risk management strategy is GFC-robust as it provides stable results across different periods relative to other VaR forecasting models. The new strategy based on combined forecasts of single models is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.
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it pays to violate how effective are the Basel Accord penalties in encouraging risk management
Accounting and Finance, 2012Co-Authors: Bernardo Da Veiga, Felix Chan, Michael McaleerAbstract:The internal models amendment to the Basel Accord allows banks to use internal models to forecast Value-at-risk (VaR) thresholds, which are used to calculate the required capital that banks must hold in reserve as a protection against negative changes in the value of their trading portfolios. As capital reserves lead to an opportunity cost to banks, it is likely that banks could be tempted to use models that underpredict risk and hence lead to low capital charges. To avoid this problem the Basel Accord introduced a backtesting procedure, whereby banks using models that led to excessive violations are penalised through higher capital charges. This paper investigates the performance of five popular volatility models that can be used to forecast VaR thresholds under a variety of distributional assumptions. The results suggest that, within the current constraints and the penalty structure of the Basel Accord, the lowest capital charges arise when using models that lead to excessive violations, thereby suggesting the current penalty structure is not severe enough to encourage adequate risk management. In addition, this paper suggests an alternative penalty structure that is more effective at aligning the interests of banks and regulators.
Teodosio Perezamaral - One of the best experts on this subject based on the ideXlab platform.
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has the Basel Accord improved risk management during the global financial crisis
The North American Journal of Economics and Finance, 2013Co-Authors: Michael Mcaleer, Juanangel Jimenezmartin, Teodosio PerezamaralAbstract:The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. In this paper we define risk management in terms of choosing from a variety of risk models, and discuss the selection of optimal risk models. A new approach to model selection for predicting VaR is proposed, consisting of combining alternative risk models, and we compare conservative and aggressive strategies for choosing between VaR models. We then examine how different risk management strategies performed during the 2008–09 global financial crisis. These issues are illustrated using Standard and Poor's 500 Composite Index.
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original article gfc robust risk management under the Basel Accord using extreme value methodologies
Mathematics and Computers in Simulation, 2013Co-Authors: Juanangel Jimenezmartin, Michael Mcaleer, Teodosio Perezamaral, Paulo Araujo SantosAbstract:In this paper we provide further evidence on the suitability of the median of the point VaR forecasts of a set of models as a GFC-robust strategy by using an additional set of new extreme value forecasting models and by extending the sample period for comparison. The median is not affected by extremes, unlike the mean. In periods of contagion, wherein the number and values of extremes are substantially greater, the use of the median would be expected to be even more robust than the mean. These extreme value models include DPOT and Conditional EVT. Such models might be expected to be useful in explaining financial data, especially in the presence of extreme shocks that arise during a GFC. Our empirical results confirm that the median remains GFC-robust even in the presence of these new extreme value models. This is illustrated by using the S&P500 index before, during and after the 2008-2009 GFC. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria, including several tests for independence of the violations. The strategy based on the median, or more generally, on combined forecasts of single models, is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.
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gfc robust risk management strategies under the Basel Accord
International Review of Economics & Finance, 2013Co-Authors: Michael Mcaleer, Juanangel Jimenezmartin, Teodosio PerezamaralAbstract:A risk management strategy is proposed as being robust to the Global Financial Crisis (GFC) by selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models. The robust forecast is based on the median of the point VaR forecasts of a set of conditional volatility models. This risk management strategy is GFC-robust in the sense that maintaining the same risk management strategies before, during and after a financial crisis would lead to comparatively low daily capital charges and violation penalties. The new method is illustrated by using the S&P500 index before, during and after the 2008–09 global financial crisis. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria. The median VaR risk management strategy is GFC-robust as it provides stable results across different periods relative to other VaR forecasting models. The new strategy based on combined forecasts of single models is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.
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risk management of risk under the Basel Accord forecasting value at risk of vix futures
Report Econometric Institute Erasmus University Rotterdam, 2011Co-Authors: Chialin Chang, Michael Mcaleer, Juanangel Jimenezmartin, Teodosio PerezamaralAbstract:The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. McAleer, Jimenez-Martin and Perez- Amaral (2009) proposed a new approach to model selection for predicting VaR, consisting of combining alternative risk models, and comparing conservative and aggressive strategies for choosing between VaR models. This paper addresses the question of risk management of risk, namely VaR of VIX futures prices. We examine how different risk management strategies performed during the 2008-09 global financial crisis (GFC). We find that an aggressive strategy of choosing the Supremum of the single model forecasts is preferred to the other alternatives, and is robust during the GFC. However, this strategy implies relatively high numbers of violations and accumulated losses, though these are admissible under the Basel II Accord.
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international evidence on gfc robust forecasts for risk management under te Basel Accord
Report Econometric Institute Erasmus University Rotterdam, 2011Co-Authors: Michael Mcaleer, Juanangel Jimenezmartin, Teodosio PerezamaralAbstract:A risk management strategy that is designed to be robust to the Global Financial Crisis (GFC), in the sense of selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models, was proposed in McAleer et al. (2010c). The robust forecast is based on the median of the point VaR forecasts of a set of conditional volatility models. Such a risk management strategy is robust to the GFC in the sense that, while maintaining the same risk management strategy before, during and after a financial crisis, it will lead to comparatively low daily capital charges and violation penalties for the entire period. This paper presents evidence to support the claim that the median point forecast of VaR is generally GFC-robust. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria. In the empirical analysis, we choose several major indexes, namely French CAC, German DAX, US Dow Jones, UK FTSE100, Hong Kong Hang Seng, Spanish Ibex35, Japanese Nikkei, Swiss SMI and US S&P500. The GARCH, EGARCH, GJR and Riskmetrics models, as well as several other strategies, are used in the comparison. Backtesting is performed on each of these indexes using the Basel II Accord regulations for 2008-10 to examine the performance of the Median strategy in terms of the number of violations and daily capital charges, among other criteria. The Median is shown to be a profitable and safe strategy for risk management, both in calm and turbulent periods, as it provides a reasonable number of violations and daily capital charges. The Median also performs well when both total losses and the asymmetric linear tick loss function are considered
Juanangel Jimenezmartin - One of the best experts on this subject based on the ideXlab platform.
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has the Basel Accord improved risk management during the global financial crisis
The North American Journal of Economics and Finance, 2013Co-Authors: Michael Mcaleer, Juanangel Jimenezmartin, Teodosio PerezamaralAbstract:The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. In this paper we define risk management in terms of choosing from a variety of risk models, and discuss the selection of optimal risk models. A new approach to model selection for predicting VaR is proposed, consisting of combining alternative risk models, and we compare conservative and aggressive strategies for choosing between VaR models. We then examine how different risk management strategies performed during the 2008–09 global financial crisis. These issues are illustrated using Standard and Poor's 500 Composite Index.
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original article gfc robust risk management under the Basel Accord using extreme value methodologies
Mathematics and Computers in Simulation, 2013Co-Authors: Juanangel Jimenezmartin, Michael Mcaleer, Teodosio Perezamaral, Paulo Araujo SantosAbstract:In this paper we provide further evidence on the suitability of the median of the point VaR forecasts of a set of models as a GFC-robust strategy by using an additional set of new extreme value forecasting models and by extending the sample period for comparison. The median is not affected by extremes, unlike the mean. In periods of contagion, wherein the number and values of extremes are substantially greater, the use of the median would be expected to be even more robust than the mean. These extreme value models include DPOT and Conditional EVT. Such models might be expected to be useful in explaining financial data, especially in the presence of extreme shocks that arise during a GFC. Our empirical results confirm that the median remains GFC-robust even in the presence of these new extreme value models. This is illustrated by using the S&P500 index before, during and after the 2008-2009 GFC. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria, including several tests for independence of the violations. The strategy based on the median, or more generally, on combined forecasts of single models, is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.
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gfc robust risk management strategies under the Basel Accord
International Review of Economics & Finance, 2013Co-Authors: Michael Mcaleer, Juanangel Jimenezmartin, Teodosio PerezamaralAbstract:A risk management strategy is proposed as being robust to the Global Financial Crisis (GFC) by selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models. The robust forecast is based on the median of the point VaR forecasts of a set of conditional volatility models. This risk management strategy is GFC-robust in the sense that maintaining the same risk management strategies before, during and after a financial crisis would lead to comparatively low daily capital charges and violation penalties. The new method is illustrated by using the S&P500 index before, during and after the 2008–09 global financial crisis. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria. The median VaR risk management strategy is GFC-robust as it provides stable results across different periods relative to other VaR forecasting models. The new strategy based on combined forecasts of single models is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.
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gfc robust risk management under the Basel Accord using extreme value methodologies
Econometric Institute Research Papers, 2011Co-Authors: Paulo Araujo Santos, Michael Mcaleer, Juanangel Jimenezmartin, Teodosio Perez AmaralAbstract:In McAleer et al. (2010b), a robust risk management strategy to the Global Financial Crisis (GFC) was proposed under the Basel II Accord by selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models. The robust forecast was based on the median of the point VaR forecasts of a set of conditional volatility models. In this paper we provide further evidence on the suitability of the median as a GFC-robust strategy by using an additional set of new extreme value forecasting models and by extending the sample period for comparison. These extreme value models include DPOT and Conditional EVT. Such models might be expected to be useful in explaining financial data, especially in the presence of extreme shocks that arise during a GFC. Our empirical results confirm that the median remains GFC-robust even in the presence of these new extreme value models. This is illustrated by using the S&P500 index before, during and after the 2008-09 GFC. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria, including several tests for independence of the violations. The strategy based on the median, or more generally, on combined forecasts of single models, is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.
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risk management of risk under the Basel Accord forecasting value at risk of vix futures
Report Econometric Institute Erasmus University Rotterdam, 2011Co-Authors: Chialin Chang, Michael Mcaleer, Juanangel Jimenezmartin, Teodosio PerezamaralAbstract:The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. McAleer, Jimenez-Martin and Perez- Amaral (2009) proposed a new approach to model selection for predicting VaR, consisting of combining alternative risk models, and comparing conservative and aggressive strategies for choosing between VaR models. This paper addresses the question of risk management of risk, namely VaR of VIX futures prices. We examine how different risk management strategies performed during the 2008-09 global financial crisis (GFC). We find that an aggressive strategy of choosing the Supremum of the single model forecasts is preferred to the other alternatives, and is robust during the GFC. However, this strategy implies relatively high numbers of violations and accumulated losses, though these are admissible under the Basel II Accord.
Owen Tang - One of the best experts on this subject based on the ideXlab platform.
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law and economics of port finance whether port developers can benefit from a low interest rate environment from financing port assets under the Basel Accord
International Forum on Shipping Ports and Airports (IFSPA) 2014: Sustainable Development in Shipping and Transport LogisticsHong Kong Polytechnic Univ, 2014Co-Authors: Owen TangAbstract:This paper aims to investigate the impacts created by Basel Accord on port finance from a law and economics perspectives. Historically, port developments and shipping are maritime sectors that have received “too much” finance. The economic crisis in 2008 motivated researchers to investigate the ramifications for the relationship among finance-driven capitalism and its corresponding geographical and economic sectors. Instead of conducting an investigation on the general ramifications on the financing and the overall maritime sector, this paper will only concentrate investigating whether port developers can benefit from a low interest rate environment from financing port infrastructure improvements under the Basel Accord. This paper submits that, given the capital intensive nature of port terminal investments, both port and ship financing have become more difficult under Basel III. One contributing factor is that containerization increases the demands for capital resources, not just for the acquisition and operation of terminal assets, but also for purchasing related intermodal equipment. This paper also concludes that due to the shareholder primacy of current banking practices, there is a powerful incentive for financial institutions to artificially reduce the value of their risk-weighted assets, and one of the reasons is that port assets were being reclassified into risky category after the financial crisis. In the sector of port investments, the financial institutions would likely to achieve the value reduction through securitization, so that they can bargain for the risk-weight discounts in the form of off-balance-sheet transactions. To sum up, this paper concludes that with the influences of Basel III, port developers are less likely to enjoy the financing advantage normally can be expected under a low interest rate environment.
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Law and Economics of Port Finance – Whether Port Developers can Benefit from a Low Interest Rate Environment from Financing Port Assets under the Basel Accord
2014Co-Authors: Owen TangAbstract:This paper aims to investigate the impacts created by Basel Accord on port finance from a law and economics perspectives. Historically, port developments and shipping are maritime sectors that have received “too much” finance. The economic crisis in 2008 motivated researchers to investigate the ramifications for the relationship among finance-driven capitalism and its corresponding geographical and economic sectors. Instead of conducting an investigation on the general ramifications on the financing and the overall maritime sector, this paper will only concentrate investigating whether port developers can benefit from a low interest rate environment from financing port infrastructure improvements under the Basel Accord. This paper submits that, given the capital intensive nature of port terminal investments, both port and ship financing have become more difficult under Basel III. One contributing factor is that containerization increases the demands for capital resources, not just for the acquisition and operation of terminal assets, but also for purchasing related intermodal equipment. This paper also concludes that due to the shareholder primacy of current banking practices, there is a powerful incentive for financial institutions to artificially reduce the value of their risk-weighted assets, and one of the reasons is that port assets were being reclassified into risky category after the financial crisis. In the sector of port investments, the financial institutions would likely to achieve the value reduction through securitization, so that they can bargain for the risk-weight discounts in the form of off-balance-sheet transactions. To sum up, this paper concludes that with the influences of Basel III, port developers are less likely to enjoy the financing advantage normally can be expected under a low interest rate environment.
Kevin T Jacques - One of the best experts on this subject based on the ideXlab platform.
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procyclicality bank lending and the macroeconomic implications of a revised Basel Accord
The Financial Review, 2010Co-Authors: Kevin T JacquesAbstract:Bank regulators are in the process of implementing revised regulatory capital standards. However, the macroeconomic effects of a revised Basel Accord are uncertain. Examining the various channels through which the revised Accord may influence economic output suggests that making the buffer stock of capital positively related to the business cycle is necessary to reduce procyclicality. This can be accomplished by bank regulators using either enhanced supervisory powers or increased financial disclosure.
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Adjustment Costs, Errors in Risk Weights, and Banks' Balance Sheets: The 1988 Basel Accord Revisited
2010Co-Authors: Kevin T Jacques, Elva Coadari, John ThorntonAbstract:Following implementation of the 1988 Basel Accord, U.S. banks altered their balance sheets in a variety of different ways including reallocating assets, reducing lending, and increasing capital. While much of the existing empirical research recognizes that fact, it fails to answer the question of why. In the context of a profit-maximization model that recognizes both non-homogeneous adjustment costs and errors in risk weights, this paper examines the question of why different banks exhibited different responses to implementation of the 1988 Accord. The results suggest that banks with different loan and capital adjustment costs exhibited very different responses to implementation of the 1988 Accord. Furthermore, errors in calibrating the risk weights played a significant role in banks’ balance sheet changes. The results are sufficiently robust to explain the sometimes contradictory findings of other researchers.
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capital shocks bank asset allocation and the revised Basel Accord
Review of Financial Economics, 2008Co-Authors: Kevin T JacquesAbstract:In contrast to the 1988 Basel Accord (Basel I), the revised risk-based capital standards (Basel II) propose regulatory capital requirements based on credit ratings. This paper develops a theoretical model to analyze how banks will adjust their low and high credit risk commercial loans under the proposed newer standard. Capital-constrained banks respond to an adverse capital shock by reducing high credit risk loans, while under certain circumstances, low credit risk loans may actually increase. When compared to Basel I, it is shown that high-risk loans are reduced more under Basel II, but whether a bank reduces total lending more under Basel I or under the revised standards depends on a complex interaction of factors.