Template-type: ReDIF-Paper 1.0
Author-Name: Michael McAleer
Author-Workplace-Name: Department of Quantitative Economics,Complutense University of Madrid and 
	Econometric Institute Erasmus University Rotterdam
Title: The Ten Commandments for Optimizing Value-at-Risk and Daily Capital Charges
Abstract: Credit risk is the most important type of risk in terms of monetary value. Another key
	risk measure is market risk, which is concerned with stocks and bonds, and related
	financial derivatives, as well as exchange rates and interest rates. This paper is
	concerned with market risk management and monitoring under the Basel II Accord,
	and presents Ten Commandments for optimizing Value-at-Risk (VaR) and daily
	capital charges, based on choosing wisely from: (1) conditional, stochastic and
	realized volatility; (2) symmetry, asymmetry and leverage; (3) dynamic correlations
	and dynamic covariances; (4) single index and portfolio models; (5) parametric,
	semiparametric and nonparametric models; (6) estimation, simulation and calibration
	of parameters; (7) assumptions, regularity conditions and statistical properties; (8)
	accuracy in calculating moments and forecasts; (9) optimizing threshold violations
	and economic benefits; and (10) optimizing private and public benefits of risk
	management. For practical purposes, it is found that the Basel II Accord would seem
	to encourage excessive risk taking at the expense of providing accurate measures and
	forecasts of risk and VaR.
Classification-JEL: G32, G11, G17, C53.
Keywords: Daily capital charges, Excessive risk taking Market risk, Risk management, Value-at-risk, Violations.
Length: 39 pages
Creation-Date: 2009
Number: 2009-10
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0910.txt
File-URL: https://eprints.ucm.es/id/eprint/8627/1/0910.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0910