- Title
- An evaluation of the effectiveness of Value-at-Risk (VaR) models for Australian banks under Basel III
- Creator
- Uylangco, Katherine; Li, Siqiwen
- Relation
- Australian Journal of Management Vol. 41, Issue 4, p. 699-718
- Publisher Link
- http://dx.doi.org/10.1177/0312896214557837
- Publisher
- Sage Publications
- Resource Type
- journal article
- Date
- 2016
- Description
- This study compares Value-at-Risk (VaR) measures for Australian banks over a period that includes the Global Financial Crisis (GFC) to determine whether the methodology and parameter selection are important for capital adequacy holdings that will ultimately support a bank in a crisis period. VaR methodology promoted under Basel II was largely criticised during the GFC for its failure to capture downside risk. However, results from this study indicate that 1-year parametric and historical models produce better measures of VaR than models with longer time frames. VaR estimates produced using Monte Carlo simulations show a high percentage of violations but with lower average magnitude of a violation when they occur. VaR estimates produced by the ARMA GARCH model also show a relatively high percentage of violations, however, the average magnitude of a violation is quite low. Our findings support the design of the revised Basel II VaR methodology which has also been adopted under Basel III.
- Subject
- Value-at-Risk (VaR); parametric VaR; Monte Carlo simulation; Basel Accords
- Identifier
- http://hdl.handle.net/1959.13/1343172
- Identifier
- uon:29103
- Identifier
- ISSN:0312-8962
- Language
- eng
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