New Economics Papers
on Risk Management
Issue of 2008‒09‒05
four papers chosen by

  1. Risk Management by the Basel Committee: Evaluating Progress made from the 1988 Basel Accord to Recent Developments By Ojo, Marianne
  2. Measuring downside risk — realised semivariance By Ole E. Barndorff-Nielsen; Silja Kinnebrock; Neil Shephard
  3. Asymmetric Multivariate Normal Mixture GARCH By Markus Haas; Stefan Mittnik; Mark S. Paolella
  4. Financial intermediary leverage and value at risk By Tobias Adrian; Hyun Song Shin

  1. By: Ojo, Marianne
    Abstract: This paper traces developments from the inception of the 1988 Basel Capital Accord to its present form (Basel II). In highlighting the flaws of the 1988 Accord, an evaluation is made of the Basel Committee’s efforts to address such weaknesses through Basel II. Whilst considerable progress has been achieved, the paper concludes, based on one of the principal aims of these Accords, namely the management of risk, that more work is still required particularly in relation to hedge funds and those risks attributed to non bank financial institutions.
    Keywords: risk;management;regulation;banks;Basel;Committee
    JEL: K2 G21
    Date: 2008–08
  2. By: Ole E. Barndorff-Nielsen; Silja Kinnebrock; Neil Shephard (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: We propose a new measure of risk, based entirely on downwards moves measured using high frequency data. Realised semivariances are shown to have important predictive qualities for future market volatility. The theory of these new measures is spelt out, drawing on some new results from probability theory.
    Keywords: Market frictions, Quadratic variation, Realised variance, Semimartingale, Semivariance
    Date: 2008–09–02
  3. By: Markus Haas (University of Munich, Institute of Statistics); Stefan Mittnik (Department of Statistics, University of Munich, Center for Financial Studies, Frankfurt, and Ifo Institute for Economic Research, Munich); Mark S. Paolella (Swiss Banking Institute, University of Zurich, Switzerland)
    Abstract: An asymmetric multivariate generalization of the recently proposed class of normal mixture GARCH models is developed. Issues of parametrization and estimation are discussed. Conditions for covariance stationarity and the existence of the fourth moment are derived, and expressions for the dynamic correlation structure of the process are provided. In an application to stock market returns, it is shown that the disaggregation of the conditional (co)variance process generated by the model provides substantial intuition. Moreover, the model exhibits a strong performance in calculating out–of–sample Value–at–Risk measures.
    Keywords: Conditional Volatility, Finite Normal Mixtures, Multivariate GARCH, Leverage Effect
    JEL: C32 C51 G10 G11
    Date: 2008–01–18
  4. By: Tobias Adrian; Hyun Song Shin
    Abstract: We study a contracting model for the determination of leverage and balance sheet size for financial intermediaries that fund their activities through collateralized borrowing. The model gives rise to two features: First, leverage is procyclical in the sense that leverage is high when the balance sheet is large. Second, leverage and balance sheet size are both determined by the riskiness of assets. For U.S. investment banks, we find empirical support for both features of our model, that is, leverage is procyclical, and both leverage and balance sheet size are determined by measured risks. In a system context, increased risk reduces the debt capacity of the financial system as a whole, giving rise to amplified de-leveraging by institutions by way of the chain of repo transactions in the financial system.
    Keywords: Financial leverage ; Financial risk management ; Assets (Accounting) ; Repurchase agreements ; Bank liquidity
    Date: 2008

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