Lambda value at risk and regulatory capital: a dynamic approach to tail risk
Hitaj, A. and Mateus, C. and Peri, Ilaria (2018) Lambda value at risk and regulatory capital: a dynamic approach to tail risk. Risks 6 (1), p. 17. ISSN 2227-9091.
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Abstract
This paper presents the first methodological proposal of estimation of the ΛVaR . Our approach is dynamic and calibrated to market extreme scenarios, incorporating the need of regulators and financial institutions in more sensitive risk measures. We also propose a simple backtesting methodology by extending the VaR hypothesis-testing framework. Hence, we test our ΛVaR proposals under extreme downward scenarios of the financial crisis and different assumptions on the profit and loss distribution. The findings show that our ΛVaR estimations are able to capture the tail risk and react to market fluctuations significantly faster than the VaR and expected shortfall. The backtesting exercise displays a higher level of accuracy for our ΛVaR estimations.
Metadata
| Item Type: | Article |
|---|---|
| Keyword(s) / Subject(s): | banking regulation, financial risk management, risk modelling, value at risk |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Administrator |
| Date Deposited: | 20 Mar 2018 13:55 |
| Last Modified: | 02 Aug 2023 17:40 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/21759 |
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