Stress Tests of Capital Requirements
This paper examines the performance of the leading methods for setting capital requirements for securities firms' trading books. Tests are conducted on a large sample of UK equity market makers' books over a substantial number of periods of equity market stress from 1985 to 1995. The comprehensive and building-block approaches, favoured by US and European regulators, fail to provide effective cover. Only portfolio-based, value-at-risk type models are efficient in providing appropriate levels of capital to cover the position risk of equity trading books.<p> <p>This paper was presented at the Financial Institutions Center's October 1996 conference on "
Year of publication: |
1996-10
|
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Authors: | Dimson, Elroy ; Marsh, Paul |
Institutions: | Financial Institutions Center, Wharton School of Business |
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