Stressed Value-at-Risk: Effects of the Basel 2.5 Regulations

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2016 (EL)
Stressed Value-at-Risk: Effects of the Basel 2.5 Regulations (EN)

Vasileiadis, Nikolaos (EN)

Sikalidis, Alexandros (EN)
Archontakis, Fragiskos (EN)
School of Economics, Business Administration and Legal Studies, MSc in Banking and Finance (EN)
Angelidis, Timotheos (EN)

This dissertation was written as part of the MSc in Banking and Finance at the International Hellenic University. The aim of this study is to assess the impact of the latest guidelines from the Basel Committee on Banking Supervision, regarding the mitigation of market risk. The so - called Basel 2.5 Accord introduced the use of a stressed Value - at - Risk (SVaR) approach obtained from one - year observations of a financially stressed period. The literature on the subject is quite limited, thus this study will enrich the existing literature with an up - to - date analysis of how different models and procedures use d to estimate market risk reacted during the 2008 financial crisis and how Basel 2.5 changed the market risk related capital charges. Six models were used for the estimation of VaR and SVaR for a period of 15 years, from 2001 to 2015, using the S&P 500 as a risk proxy. Moreover, a backtesting procedure was implemented to assess the performance of these models and the capital charges were calculated under both regulatory frameworks, backwards looking, as if they were in effect since 2001. Regarding the results, there is strong evidence against the use of the normality assumption and towards the use of the student’s t - distribution, especially for periods of crisis. Furthermore, adequate charges could be estimated even under the previous framework with the use of more sophisticated models. The new framework removes the incentive for the use of more complex models, that can better estimate the risk, through the flattening effect in the required capital, leading to the use of simpler methods that significantly underestimate risk in highly volatile periods while tending to overestimate the risk in periods of low volatility. This forces the banks to keep unreasonably high capital as a reserve in prosper times, preventing them from using it in a more productive way. (EN)


Value - at - Risk (EN)
Stressed Value - at - Risk (EN)
Basel II (EN)

Διεθνές Πανεπιστήμιο της Ελλάδος (EL)
International Hellenic University (EN)



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