RT Journal Article
SR Electronic
T1 Why Basel II Market Risk VaR is Too Conservative
JF The Journal of Trading
FD Institutional Investor Journals
SP 6
OP 12
DO 10.3905/jot.2016.11.1.006
VO 11
IS 1
A1 Mo Chaudhury
YR 2015
UL https://pm-research.com/content/11/1/6.abstract
AB This article argues that the 2009 Basel II market risk Value at Risk (VaR), which adds a stress VaR component, is overly conservative and that it is the failure to model extreme surges in volatility rather than any restrictions imposed by the VaR framework or the normality assumption that caused capital inadequacy during the financial crisis. This hypothesis is supported by comparing the pre-2009 VaR and the new 2009 VaR of Basel II and Extended Value at Risk (EVaR) for the S&P 500. EVaR is based on a market responsive composite volatility measure developed in this article and the popular normal distribution.TOPICS: Exchanges/markets/clearinghouses, VAR and use of alternative risk measures of trading risk