ICA 2010 ABSTRACTS, PAPERS AND PRESENTATIONS
Use this search function to find authors, abstracts, papers and presentations. Currently
you can search by author, reference number and track, and a session search layer will be
added when the session titles are finalised. Records will only be available for viewing
if the author/presenter has submitted a draft paper or draft presentation outline.
When final papers are submitted they will also be available here, as well as the
PowerPoints given at the congress.
If you are an author and you would like amendments made to your record, please email
the Programme Secretariat here,
and note your reference number.
Use the selection boxes below to search through the papers and presentations.
A Study on Value-at-Risk and Levy Processes
| Ref No |
Author |
Co-authors |
Country |
Track |
| 117 |
Olivier Le Courtois |
Christian Walter |
France |
Financial Risks (AFIR) |
| Date |
Time |
Session |
Room |
|
| Friday, 12 March |
10h45 |
Theoretical concepts |
Meeting Room 2.6B |
|
Abstract
The Basle Capital Accord issued from the Basle Committee on Banking supervision has imposed a multiplier between 3 and 4 on the bank's internal 10-day Value-at-Risk calculated for market risk exposure. This ad hoc factor has not been fully explained and is poorly justified by arguing that the standard classical models of stock price dynamics do not adequately capture actual market risks. In this paper, we tackle this issue by adopting a probabilistic framework based on Lévy processes with both finite and infinite activity, but with finite variation. We accommodate bank regulator concerns with several types of Lévy processes which allow to exhibit a factor 3 between Brownian-VaR and Lévy-VaR, and we show that the Lévy-VaR is more consistent with the reality of market risk. On the technical side our paper provides a new general Fourier formula that allows to compute VaR quickly and efficiently as soon as the characteristic function of the process under study is known, so for a wide class of stochastic processes. Our study can be of interest for the computation of Solvency Capital Requirements in the context of the preparation of Solvency 2.
|
|
