Next Article in Journal
Consistent Valuation Across Curves Using Pricing Kernels
Next Article in Special Issue
An Intersection–Union Test for the Sharpe Ratio
Previous Article in Journal
Special Issue “Ageing Population Risks”
Article Menu
Issue 1 (March) cover image

Export Article

Open AccessArticle
Risks 2018, 6(1), 17; https://doi.org/10.3390/risks6010017

Lambda Value at Risk and Regulatory Capital: A Dynamic Approach to Tail Risk

1
Department of Statistics and Quantitative Methods, University of Milan Bicocca, U7, Via Bicocca degli Arcimboldi 8, Milan 20126, Italy
2
Department of Accounting and Finance, University of Greenwich, Old Royal Naval College, Park Row, London SE10 9LS, UK
3
Department of Economics, Mathematics and Statistics, Birkbeck University of London, Malet St, Bloomsbury, London WC1E 7HX, UK
*
Author to whom correspondence should be addressed.
Received: 17 January 2018 / Revised: 24 February 2018 / Accepted: 1 March 2018 / Published: 6 March 2018
Full-Text   |   PDF [731 KB, uploaded 6 March 2018]   |  

Abstract

This paper presents the first methodological proposal of estimation of the Λ V a R . Our approach is dynamic and calibrated to market extreme scenarios, incorporating the need of regulators and financial institutions in more sensitive risk measures. We also propose a simple backtesting methodology by extending the V a R hypothesis-testing framework. Hence, we test our Λ V a R proposals under extreme downward scenarios of the financial crisis and different assumptions on the profit and loss distribution. The findings show that our Λ V a R estimations are able to capture the tail risk and react to market fluctuations significantly faster than the V a R and expected shortfall. The backtesting exercise displays a higher level of accuracy for our Λ V a R estimations. View Full-Text
Keywords: banking regulation; financial risk management; risk modelling; value at risk banking regulation; financial risk management; risk modelling; value at risk
Figures

Figure 1

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

Hitaj, A.; Mateus, C.; Peri, I. Lambda Value at Risk and Regulatory Capital: A Dynamic Approach to Tail Risk. Risks 2018, 6, 17.

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