Scenario Based Principal Component Value-at-Risk: an Application to Italian Banks' Interest Rate Risk Exposure
| Autor: | Roberta Fiori, Simonetta Iannotti |
|---|---|
| Rok vydání: | 2006 |
| Předmět: |
Standardized approach
Risk measure media_common.quotation_subject Nonparametric statistics Basel II jel:C14 jel:G21 Interest rate Interest rate risk jel:C19 Statistics Econometrics Economics Interest rate risk VAR PCA Non-normality Non parametric methods Value at risk media_common Parametric statistics |
| Popis: | The paper develops a Value-at-Risk methodology to assess Italian banks� interest rate risk exposure. By using 5 years of daily data, the exposure is evaluated through a Principal Component VaR based on Monte Carlo simulation according to two different approaches (parametric and non-parametric). The main contribution of the paper is a methodology for modelling interest rate changes when underlying risk factors are skewed and heavy-tailed. The methodology is then implemented on a one year holding period in order to compare the results from those resulting from the Basel II standardized approach. We find that the risk measure proposed by Basel II gives an adequate description of risk, provided that duration parameters are changed to reflect market conditions. Finally, the methodology is used to perform a stress testing analysis. |
| Databáze: | OpenAIRE |
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