Autori:
Barrieu, Pauline,
Ravanelli, ClaudiaTitolo:
Robust capital requirements with model risk Periodico:
Economic notesAnno:
2015 - Volume:
44 - Fascicolo:
1 - Pagina iniziale:
1 - Pagina finale:
28We study capital requirements when the bank's econometric model only approximately describes the dynamics of portfolio returns—which is virtually always the case in practice. We derive a simple formula for capital requirements based on a first-order Taylor expansion of the Value at Risk around a ‘model confidence’ parameter. This formula allows to reflect the bank's confidence in the econometric model into capital requirements in a theoretically consistent manner. Numerical and empirical applications show that our formula provides valuable information for quantifying capital requirements under model risk.
SICI: 0391-5026(2015)44:1<1:RCRWMR>2.0.ZU;2-P
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