Rossignolo, A.F., Fethi, M.D. and Shaban, M. (2011) Value-at-Risk models and Basel capital charges: Evidence from Emerging and Frontier stock markets. Journal of Financial Stability, 8 (4). 303 -319. ISSN 1572-3089
Abstract
In the wake of the subprime crisis of 2007 which uncovered shortfalls in capital levels of most financial institutions, the Basel Committee planned to strengthen current regulations contained in Basel II. While maintaining the Internal Model Approach based on Value-at-Risk, a stressed VaR calculated over highly strung periods is to be added to present directives to constitute Minimum Capital Requirements. Consequently, the adoption of the appropriate VaR specification remains a subject of paramount importance as it determines the financial condition of the firm. In this article I explore the performance of several models to compute MCR in the context of Emerging and Frontier stock markets within the present and proposed capital structures. Considering the evidence gathered, two major contributions arise: (a) heavy-tailed distributions – particularly Extreme Value (EV) ones-, reveal as the most accurate technique to model market risks, hence preventing huge capital deficits under current measures; (b) the application of such methods could allow slight modifications to present mandate and simultaneously avoid sVaR or at least reduce its scope, thus mitigating the impact regarding the enhancement of capital base. Therefore, I suggest that the inclusion of EV in planned supervisory accords should reduce development costs and foster healthier financial structures.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2011 Elsevier B.V. All rights reserved |
Keywords: | Value-at-Risk; Extreme Value Theory; Emerging and Frontier markets; Capital Requirements; Stressed VaR |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Management School (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 22 Jan 2016 14:25 |
Last Modified: | 10 Mar 2016 18:52 |
Published Version: | http://dx.doi.org/10.1016/j.jfs.2011.11.003 |
Status: | Published |
Publisher: | Elsevier |
Refereed: | Yes |
Identification Number: | 10.1016/j.jfs.2011.11.003 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:92023 |