Next Article in Journal
Linear Regression for Heavy Tails
Previous Article in Journal
The Stability of the Aggregate Loss Distribution
Article Menu

Export Article

Open AccessArticle
Risks 2018, 6(3), 92; https://doi.org/10.3390/risks6030092

On the Basel Liquidity Formula for Elliptical Distributions

1
Deutsche Bundesbank, 40212 Düsseldorf, Germany
2
The York Management School, University of York, Freboys Lane, York YO10 5GD, UK
The opinions expressed in this paper are those of the author and do not necessarily reflect views shared by the Deutsche Bundesbank or its staff.
*
Author to whom correspondence should be addressed.
Received: 5 July 2018 / Revised: 24 August 2018 / Accepted: 3 September 2018 / Published: 7 September 2018
Full-Text   |   PDF [906 KB, uploaded 7 September 2018]

Abstract

A justification of the Basel liquidity formula for risk capital in the trading book is given under the assumption that market risk-factor changes form a Gaussian white noise process over 10-day time steps and changes to P&L (profit-and-loss) are linear in the risk-factor changes. A generalization of the formula is derived under the more general assumption that risk-factor changes are multivariate elliptical. It is shown that the Basel formula tends to be conservative when the elliptical distributions are from the heavier-tailed generalized hyperbolic family. As a by-product of the analysis, a Fourier approach to calculating expected shortfall for general symmetric loss distributions is developed. View Full-Text
Keywords: Basel Accords; liquidity risk; risk measures; expected shortfall; elliptical distributions; generalized hyperbolic distributions Basel Accords; liquidity risk; risk measures; expected shortfall; elliptical distributions; generalized hyperbolic distributions
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
SciFeed

Share & Cite This Article

MDPI and ACS Style

Balter, J.; McNeil, A.J. On the Basel Liquidity Formula for Elliptical Distributions. Risks 2018, 6, 92.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Risks EISSN 2227-9091 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top