Choosing a proper external risk measure is of great regulatory importance, as exemplified in the Basel II and Basel III … Accord which use Value-at-Risk (VaR) with scenario analysis as the risk measures for setting capital requirements. We argue a … good external risk measure should be robust with respect to model misspecification and small changes in the data. A new …

operating risk may behave as if they were more risk averse in investment decisions. Specifically, we study how operating risk … from underwriting insurance policies affects insurers' risk taking behavior in their portfolio investments. We find that … risk -- they have lower credit risk exposure in their bond investments, as well as lower portfolio weights on risky bonds …

We present a model where bank assets are a portfolio of risky debt claims and analyze stockholders' risk … increases, risk shifting by borrowers increases, even if their leverage is unchanged (zombie lending). (2) While the literature … increase prevails through a second channel: an increase in risk shifting. (3) Risk shifting decreases with the diversification …

-modellable risk factors (NMRF) as foreseen under the Basel Fundamental Review of the Trading Book (FRTB) rules for market risk. In … this paper, we present the foundations of such a methodology. By design, it is universally applicable to all kinds of risk … universe of real historical returns from all asset classes. Finally, we extend the methodology from single risk factors to …

Under the Basel II regulatory framework non-negligible statistical problems arise when backtesting risk measures. In …. According to Escanciano and Olmo (2010, 2011) these problems persist when incorporating estimation and model risk by adjusting … adequacy of Value at Risk measures. One main finding indicates that backtests of all classes show heavy size distortions. These …

Risk measurement and pricing of financial positions are based on modeling assumptions, which are common assumptions on … model risk by considering a model space. First, we incorporate model risk into market risk measures by introducing model … weighted and superposed market risk measures. Second, we quantify model risk itself and propose axioms for model risk measures …

The incremental risk charge (IRC) is a new regulatory requirement from the Basel Committee in response to the recent … generated. The second Monte Carlo simulation is the random draws based on the constant level of risk assumption. It convolutes …

to market extreme scenarios, incorporating the need of regulators and financial institutions in more sensitive risk … loss distribution. The findings show that our VaR estimations are able to capture the tail risk and react to market …

calibrated to market extreme scenarios, incorporating the need of regulators and financial institutions in more sensitive risk … and loss distribution. The findings show that our Lambda VaR estimations are able to capture the tail risk and react to …