On the Necessity of Five Risk Measures

Dominique Guegan; Wayne Tarrant

halshs-00721339, version 1

On the Necessity of Five Risk Measures

Dominique Guegan (, ) ^1, 2, Wayne Tarrant () ³

Annals of Finance 8, 4 (2012) 533-552

Résumé : The banking systems that deal with risk management depend on underlying risk measures. Following the recommendation of the Basel II accord, most banks have developed internal models to determine their capital requirement. The Value at Risk measure plays an important role in computing this capital. In this paper we analyze in detail the errors produced by use of this measure. We then discuss other measures, pointing out their strengths and shortcomings. We give detailed examples, showing the need for five risk measures in order to compute a capital in relation to the risk to which the bank is exposed. In the end, we suggest using five different risk measures for computing capital requirements.

1 : Centre d'économie de la Sorbonne (CES)
CNRS : UMR8174 – Université Paris I - Panthéon-Sorbonne
2 : Ecole d'Économie de Paris - Paris School of Economics (EEP-PSE)
Ecole d'Économie de Paris
3 : Wingate University
Department of Mathematics

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Contributeur : Dominique Guegan <>
Soumis le : Vendredi 27 Juillet 2012, 16:56:53
Dernière modification le : Lundi 6 Mai 2013, 16:40:53

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DOI : 10.1007/s10436-012-0205-2

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%F halshs-00721339, version 1
%0 Journal Article
%U http://halshs.archives-ouvertes.fr/halshs-00721339
%T On the Necessity of Five Risk Measures
%A Guegan, Dominique
%A Tarrant, Wayne
%+ Centre d'économie de la Sorbonne - CES , Ecole d'Économie de Paris - Paris School of Economics - EEP-PSE , Wingate University
%Z Axe Finance
%G Anglais
%X The banking systems that deal with risk management depend on underlying risk measures. Following the recommendation of the Basel II accord, most banks have developed internal models to determine their capital requirement. The Value at Risk measure plays an important role in computing this capital. In this paper we analyze in detail the errors produced by use of this measure. We then discuss other measures, pointing out their strengths and shortcomings. We give detailed examples, showing the need for five risk measures in order to compute a capital in relation to the risk to which the bank is exposed. In the end, we suggest using five different risk measures for computing capital requirements.
%X Les systèmes bancaires qui traitent de la gestion des risques dépendent des mesures de risque sous-jacentes. Suite à la recommandation de l'accord de Bâle II, la plupart des banques ont développé des modèles internes pour déterminer leur exigence de capital. Le choix de la mesure du risque joue un rôle important dans le calcul de ce capital. Dans cet article, nous analysons en détail les erreurs produites par l'utilisation d'une mesure en particulier. Nous proposons ensuite d'autres mesures, en soulignant leurs forces et leurs faiblesses. Nous donnons des exemples détaillés, montrant la nécessité de cinq mesures de risque afin de calculer un capital correspondant aux risques auxquels la Banque est exposée. In fine, nous suggérons d'utiliser cinq mesures de risque différentes pour le calcul des exigences en capital.
%2 SHS:ECO;SHS:GESTION;SHS:STAT;MATH:MATH_PR;MATH:MATH_ST;STAT:TH
%R 10.1007/s10436-012-0205-2
%J Annals of Finance
%2 internationale
%8 2012-11-00
%V 8
%N 4
%P 533-552
%K Risk measure; Value at Risk; Bank capital; Basel II Accord
%K Mesures de risque; VaR; capital bancaire; accord de Bâle II
%2 C - Mathematical and Quantitative Methods/C1 - Econometric and Statistical Methods: General/C16 - Specific Distributions, G - Financial Economics/G1 - General Financial Markets/G18 - Government Policy and Regulation, E - Macroeconomics and Monetary Economics/E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit/E52 - Monetary Policy
%Z A paraître dans Annals of Finance