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Market Risk Modelling at Long Time Horizons and the Integrated Evaluation of Credit and Market Risk
Year Of Publication: 2005
Month Of Publication: April
Pages: 21
Download Count: 375
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Comment Num: 0
Language: EN
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Who Can Read: Free
Date: 6-2-2007
Publisher: Administrator
Summary
We investigate two aspects of the integrated measurement of creditand market risk: (1) Market risk factor modelling at time horizonslonger than usual in pure market risk management (we consider athree months horizon). We conclude that (a) aggregating models forhigh frequency data in general leads to worse results than discardingthe high frequency data and estimating the models for low frequencyreturns only from low frequency data, (b) in a comparison of modelswith the same aggregation level, models which take into accountGARCH effects fare better than constant volatility models.(2) For a number of sample portfolios we evaluate the necessity ofan integrated evaluation of market and credit risk. We compare thesum of separate risk numbers for pure market and pure credit riskto a total risk number for the profit-loss distribution of joint changesof credit and market risk factors. We show that total risk can beconsiderably higher than the sum of market and credit risk. Measuringmarket and credit risk in an integrated way spots risks that are hidden to a simple addition of pure market and credit risk numbers.
Author(s)
Breuer, Thomas Sign in to follow this author
Jandacka, Martin Sign in to follow this author
Krenn, Gerald Sign in to follow this author
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