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Risks 2014, 2(1), 25-48; doi:10.3390/risks2010025

An Academic Response to Basel 3.5

4,*  and 2
1 RiskLab and SFI, Department of Mathematics, ETH Zurich, Zurich 8092, Switzerland 2 School of Economics and Management, University of Firenze, Firenze 50127, Italy 3 Department of Mathematical Stochastics, University of Freiburg, Freiburg 79104, Germany 4 Department of Statistics and Actuarial Science, University of Waterloo, Waterloo, ON N2L 3G1, Canada
* Author to whom correspondence should be addressed.
Received: 25 November 2013 / Revised: 9 February 2014 / Accepted: 17 February 2014 / Published: 27 February 2014
(This article belongs to the Special Issue Risk Management Techniques for Catastrophic and Heavy-Tailed Risks)
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Recent crises in the financial industry have shown weaknesses in the modeling of Risk-Weighted Assets (RWAs). Relatively minor model changes may lead to substantial changes in the RWA numbers. Similar problems are encountered in the Value-at-Risk (VaR)-aggregation of risks. In this article, we highlight some of the underlying issues, both methodologically, as well as through examples. In particular, we frame this discussion in the context of two recent regulatory documents we refer to as Basel 3.5.
Keywords: Basel 3.5; risk-weighted assets; Value-at-Risk; expected shortfall; model uncertainty; robustness; backtesting Basel 3.5; risk-weighted assets; Value-at-Risk; expected shortfall; model uncertainty; robustness; backtesting
This is an open access article distributed under the Creative Commons Attribution License (CC BY) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Embrechts, P.; Puccetti, G.; Rüschendorf, L.; Wang, R.; Beleraj, A. An Academic Response to Basel 3.5. Risks 2014, 2, 25-48.

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