Basel violations, volatility model variants and value at risk: Optimization of performance deviations in banks
Basel penalties originate from VaR violations where a bank may end up either holding more capital or will risk to be reverted to standardized approach. Regulatory capital charge can have a huge impact on banks’ profitability which depends on the estimation of VaR thresholds which is evaluated by the approaches like hypothesis tests, back-testing procedures and Basel Accord regulatory calculations for penalty zones are used. A multi-criteria performance measure has been introduced in this study in order to select the optimal internal model based on performance evaluation techniques which could possibly help in reduction in the VaR violations and thus may leave more capital with banks.
Ahmed, Aejaz. 2014. How to Benefit from Basel III Recommendations to develop Risk Management Practices? Deloitte & Touche. Middle East. April
Al-Harbi, K. and M. Al-Subhi (2001), “Application of the AHP in project management,” Intl. Journal of Project Management, vol. 19, pp. 19-27
McAleer, M. and da Veiga, B. (2006), “Single Index and Portfolio Models for Forecasting Value-at-Risk Thresholds”, School of Economics and Commerce University of Western Australia, available online
Anjum, Shahid. 2013a. Risk Adjusted Business Intelligence Architecture for Cloud Computing for Banking Industry. In Proceedings of International Conference on Information & Social Science (ISS2013). Nagoya. Japan, Sept. 2013
Anjum, Shahid. 2013b. Algorithms for Predictive Classification in Data Mining: A Comparison of Evaluation Methodologies. Journal of Industrial and Intelligent Information (JIII). 1, 2 (June 2013).
Anjum, Shahid. 2014a. Backtesting VaR Violations, Be-ALAM Regression and Internal Models of Portfolio Variance Forecasting. Journal of Money Investment and Banking. issue 29. Sept.
Anjum, Shahid. 2014b. Composite Indicators for Data Mining: A New Framework for Assessment of Prediction Classifiers. Jour. of Economics, Business & Management. 2, 1 (Feb. 2014)
Anjum, S. 2014c. Systematic Risk Outliers and Beta Reliability in Emerging Economies: Estimation-Risk Reduction with AZAM Regression. Review of Integrative Business and Economics Research (RIBER). 3, 1 (2014)
Anjum, S. 2014d. Quantification of Fiduciary Risks: Islamic Sources of Funds, Neo-Institutionalism and SARWAR Bank. Journal of Islamic Banking and Finance. 2, 1 (March 2014)
Anjum, Shahid. 2014e. Statistical Software and Regression Diagnostics Reporting with Fuzzy AHP Intelligent Zax (FAIZ). Lecture Notes in Software Engineering. 1, 2 (2014)
Anjum, Shahid. 2015a. Balance Sheet Structure, Asset Side Products and Shariah Financial Engineering: Risk Ranking of Banks. Proceedings of 2015 International Conference on Advanced Research in Business and Social Sciences (ICARBSS). 1. Kuala Lumpur, Malaysia.
Anjum, Shahid. 2015b. Market Orientation, Balance Sheets and Risk Profile of Islamic Banks. International Journal of Economic Policy in Emerging Economies. Indersciences. 8, 4 (Oct, 2015)
Anjum, Shahid. 2016a. Banking Automation with Sustainable Hedging for Information Risks: BASHIR Framework for Clouds Computing. Accepted in ICCSE 2016. K.K. Malaysia, Also forthcoming in Advanced Science Letters, ASP, USA
Anjum, Shahid. 2016b. Bank’s Middle Office Analytics, Risk Modeling and Comparative Basel Regimes. Accepted in SIBR-UniKL 2017 Kuala Lumpur Conference On Interdisciplinary Business & Economics Research. February 3rd - 4th. Kuala Lumpur
Bhandari, K. G. (2010), “Market Risk – Internal Model Approach,” Indian Banks’ Association, 4th Annual summit, India
Bonissone, Piero P. 1988. Analytical Hirarechy Process. Available at: http://www.rpi.edu/~bonisp/
Chaudhary, M. Aslam and Anjum, S. 1996. Macroeconomic Policies and Management of Debt, Deficit, and Inflation in Pakistan. Pakistan Development Review. 35, 4, Part II (winter 1996). 773-786
Dardac, Nicolae. and Grigore A. 2011. Modeling the Market Risk in the Context of the Basel III Accord. Theoretical and Applied Economics. XVIII.11. 564. 5-20
IBM. 2011. Banking Data Warehouse Support for the Basel II and Basel III Framework: Including Support for the Capital Adequacy Framework and Federal Financial Institutions Examination Council, BDW Release 8.4. Whitepaper
Kou, S. Peng, X. and Heyde, Chris C. 2012. External Risk Measures and Basel Accords. Mathematics of Operations Research, INFORM
Kramer, B. Kronbichler, D. van Welie, T. and Putman, J. 2008. Comparing (Social) Objectives for Decision-Making in Housing Corporations. Applied Working Paper No. 2008-02 May. Ortec Finance Research Center (OFRC). Rotterdam
McAleer, M. and Veiga, Bernardo da. 2006. Single Index and Portfolio Models for Forecasting Value-at-Risk Thresholds. Research paper, School of Economics and Commerce. University of Western Australia.
Mehta, Amit, Max Neukirchen, Sonja Pfetsch and Thomas Poppensieker. 2012. Managing market risk: Today and tomorrow. Working Papers on Risk, Number 32. McKinsey & Co
Picoult, Evan. 2013. Lessons Learned from the Financial Crisis. Columbia Business School. NY. September
Pwc. 2012. A Closer look at US Basel III Regulatory Capital Regime and Market Risk Final Rule. Price Waterhouse Coopers (pwc), USA
Rowe, D. M. and Holt, G. A. 2011. Modeling and Analyzing Market Risk Capital Requirements Under the Basel III Internal Models Approach With Kamakura Risk Manager. Kamakura Corporation. USA. February
Shamim, F. and Anjum, S. 2013. Technology Diffusion in Japanese Finance Industry: An Exploration. International Research Journal of Applied Finance. VI , 12. (Dec. 2013)
Shamim, F., Anjum S. and Wakil, A. B. 2015. Banking Risk and Operating Efficiency Measures in the Era of IT. Accounting and Finance Research. Sciedu Press. 4 (1)
Sharma, Meera. 2012. Evaluation of Basel III revision of quantitative standards for implementation of internal models for market risk. IIMB Management Review. Indian Institute of Management Bangalore. 24. 234 – 244
Stretton, Catherine. 2011. Basel III – Market Risk. The Trading Book Series, Deloittee, January, Accessed in May, 2014 from: www.deloitte.com/assets/Dcom-SouthAfrica
How to Cite
The works published in this journal are subject to the following terms:
1. Oviedo University Press (the publisher) retains the property rights (copyright) of published works, and encourages and enables the reuse of the same under the license specified in paragraph 2.
© Ediuno. Ediciones de la Universidad de Oviedo / Oviedo University Press
2. The works are published in the online edition of the journal under a Creative Commons Attribution-Non Commercial-Non Derives 3.0 Spain (legal text). You can copy, use, distribute, transmit and publicly display, provided that: i) you cite the author and the original source of publication (journal, publisher and URL of the work), ii) they are not used for commercial purposes, iii) mentions the existence and specifications of this license.
3. Conditions of self-archiving. The author can archive the post-print version of the article (publisher’s version) on the author’s personal website and/or on the web of the institution where he belong, including a link to the page of the journal and putting the way of citation of the work. Economics and Business Letters and its URL https://reunido.uniovi.es/index.php/EBL/index are the only authorized source for correctly giving the reference of the publisher’s version in every mention of the article.