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An Evaluation of Bank VaR Measures for Market Risk During and Before the Financial Crisis
Company: Federal Reserve Board
Company Url: Click here to open
Year Of Publication: 2014
Month Of Publication: June
Pages: 53
Download Count: 14
View Count: 1522
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 7-5-2014
Publisher: Administrator
Summary
We study the performance and behavior of Value at Risk (VaR) measures used by a number of large banks during and before the ?nancial crisis. Alternative benchmark VaR measures, including GARCH-based measures, are also estimated directly from the banks’ trading revenues and help to explain the bank VaR performance results. While highly conservative in the pre-crisis period, bank VaR exceedances were excessive and clustered in the crisis period. All benchmark VaRs were more accurate in the pre-crisis period with GARCH VaR measures the most accurate in the crisis period having lower exceedance rates with no exceedance clustering. Variance decompositions indicate a limited ability of the banks’ VaR methodologies to adjust to the crisis-period market conditions. Despite their weaker performance, the bank VaRs exhibited greater predictive power for a measure of realized PnL volatility than benchmark VaR measures. Benchmark Expected Shortfall measures are also considered.
Author(s)
OBrien, James Sign in to follow this author
Szerszen, Pawel Sign in to follow this author
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