Autori: Barrieu, Pauline , Ravanelli, Claudia
Titolo: Robust capital requirements with model risk
Periodico: Economic notes
Anno: 2015 - Volume: 44 - Fascicolo: 1 - Pagina iniziale: 1 - Pagina finale: 28

We 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.


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SICI: 0391-5026(2015)44:1<1:RCRWMR>2.0.ZU;2-P

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