Skip to main content

An evaluation of the effectiveness of Value-at-Risk (VaR) models for Australian banks under Basel III

4Citations
Citations of this article
15Readers
Mendeley users who have this article in their library.
Get full text
This PDF is freely available from an open access repository. It may not have been peer-reviewed.

Abstract

This study compares Value-at-Risk (VaR) measures for Australian banks over a period that includes the Global Financial Crisis (GFC) to determine whether the methodology and parameter selection are important for capital adequacy holdings that will ultimately support a bank in a crisis period. VaR methodology promoted under Basel II was largely criticised during the GFC for its failure to capture downside risk. However, results from this study indicate that 1-year parametric and historical models produce better measures of VaR than models with longer time frames. VaR estimates produced using Monte Carlo simulations show a high percentage of violations but with lower average magnitude of a violation when they occur. VaR estimates produced by the ARMA GARCH model also show a relatively high percentage of violations, however, the average magnitude of a violation is quite low. Our findings support the design of the revised Basel II VaR methodology which has also been adopted under Basel III.

Cite

CITATION STYLE

APA

Uylangco, K., & Li, S. (2016). An evaluation of the effectiveness of Value-at-Risk (VaR) models for Australian banks under Basel III. Australian Journal of Management, 41(4), 699–718. https://doi.org/10.1177/0312896214557837

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free