Browsing by Author "McAleer, Michael"
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- GFC-robust risk management under the basel accord using extreme value methodologiesPublication . Santos, Paulo Araújo; Jiménez-Martín, Juan-Ángel; McAleer, Michael; Pérez Amaral, TeodosioIn McAleer et al. (2010b), a robust risk management strategy to the Global Financial Crisis (GFC) was proposed under the Basel II Accord by selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models. The robust forecast was based on the median of the point VaR forecasts of a set of conditional volatility models. In this paper we provide further evidence on the suitability of the median as a GFC-robust strategy by using an additional set of new extreme value forecasting models and by extending the sample period for comparison. These extreme value models include DPOT and Conditional EVT. Such models might be expected to be useful in explaining financial data, especially in the presence of extreme shocks that arise during a GFC. Our empirical results confirm that the median remains GFC-robust even in the presence of these new extreme value models. This is illustrated by using the S&P500 index before, during and after the 2008-09 GFC. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria, including several tests for independence of the violations. The strategy based on the median, or more generally, on combined forecasts of single models, is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.
- Value-at-risk model based on extreme value theory:comparison with other models under the basel accordPublication . Santos, Paulo Araújo; Jiménez-Martin, Juan-Ángel; McAleer, Michael; Pérez Amaral, TeodosioSince the Basel II accord, forecasting Value-at-Risk become a daily task of banks and other Authorized Deposit-taking Institutions (ADIs). These forecasts are used to determine capital requirements and associated capital costs of ADIs. Methods based on Extreme Value Theory (EVT) showed better performance in terms of unconditional coverage and independence in many comparative studies. In this work we compare, in terms of daily capital requirements and violation penalties under the Basel II accord, the performance of a new model based on the EVT, with other models based on EVT, GARCH-type models and the Riskmetrics model. We emphasize that with the indexes under study and taking into account the Basel penalty zones, we achieve much better results with this new model than with the well known Riskmetrics model.