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Implications of Actively Managing Market Risk via Value at Risk Methodology in Commercial Banks
Company: Proceedings of the 24th International scientific conference on organizational science development «Synergy of Methodologies
Year Of Publication: 2005
Month Of Publication: March
Pages: 1446-1454
Download Count: 373
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Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 7-4-2007
Publisher: Administrator
Summary
An important aspect of business for every commercial bank is trading financial instruments in capitalmarkets. Trading in various classes and types of securities exposes banks to new forms of risks thatare not well understood in developing countries. Market risk represents the risk that the changes inmarket prices and rates will reduce the value of security or a portfolio. In trading activities, market riskarises from two sources: open or unhedged positions taken by a bank and from imperfect correlationbetween market positions. In this paper the author examines the implications for a commercial bank ofusing the standardized approach developed by Basel committee on Banking supervision formeasuring market risk versus the internally developed rating systems for measuring market risk, suchas VaR. Using internally developed models, such as VaR, can allow banks to lower their capitalcharge and free extra resources for conducting normal business activities. The concept ofstandardized measurement method for market risk together with its’ pros and cons is presented andcompared to the characteristics and general quantitative and qualitative standards required for internalmodels of measurement
Author(s)
Zikovic, Sasa Sign in to follow this author
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