Template-type: ReDIF-Paper 1.0
Author-Name: Juan-Angel Jimenez-Martin 
Author-Email: juanangel@ccee.ucm.es
Author-Workplace-Name: Universidad Complutense de Madrid, Dpto. de Fundamentos de Análisis Económico II
Author-Name: Michael McAleer
Author-Workplace-Name: Universidad Complutense de Madrid, Dpto. de Fundamentos de Análisis Económico II
Author-Name: Teodosio Pérez-Amaral
Author-Workplace-Name: Dpto. de Fundamentos de Análisis Económico II, Universidad Complutense
Title: The Ten Commandments for Managing Value-at-Risk Under the Basel II Accord
Abstract: Under the Basel II Accord, banks and other Authorized Deposit-taking Institutions (ADIs) are required to communicate their daily 
	market risk estimates to the relevant national monetary authority at the beginning of each trading day, using one of a variety of 
	Value-at-Risk (VaR) models to measure risk. The purpose of this paper is to provide a simple explanation and a set of prescriptions 
	for managing VaR under the Basel II Accord. The commandments deal with understanding the Basel II colours, understanding the risk 
	model before choosing, varying the choice of risk model, avoiding the green zone and being willing to violate, incurring large 
	violations, stopping before the red zone, avoiding frequent violations, avoiding the estimation of large portfolios, aggregating 
	portfolios into a single index, and interpreting commandments sensibly as guidelines.
Classification-JEL: G32, G11, G17.
Keywords: Financial portfolios, daily capital charges, frequency of violations, magnitude of violations, 
	optimizing strategy, risk forecasts, value-at-risk, green zone, red zone.
Length: 10 pages
Creation-Date: 2009
Number: 2009-12
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0912.txt
File-URL: https://eprints.ucm.es/id/eprint/8691/1/0912.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0912