Evaluation of Basel III revision of quantitative standards for implementation of internal models for market risk

• Main Author: Meera Sharma
• Format: Article
• Language: English
• Published: Elsevier 2012-12-01
• Series: IIMB Management Review
• Subjects: Basel III; Conditional coverage; Historical simulation; Unconditional coverage; Value-at-risk
• Online Access: http://www.sciencedirect.com/science/article/pii/S0970389612000778

This paper studies revisions under Basel III for market risk which allow conservative combination of short and long period Value-at-Risks (VaRs). This is the first study that examines this issue. The performance of the combination method is evaluated through regulatory back tests, unconditional and conditional coverage tests. The combination improves performance in regulatory back tests and tests of unconditional coverage. A common trend is the superior performance of long (1000/750 day) in combination with short (190/125 days) VaR methods. The combination does not enhance conditional coverage performance. This is the first study on this topic.