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Market Risk: An introduction to the concept & analytics of Value-at-risk

Author

Listed:
  • Frain, John

    (Central Bank and Financial Services Authority of Ireland)

  • Meegan, Conor

    (Central Bank and Financial Services Authority of Ireland)

Abstract
In recent years the concept of Value-at-risk has achieved prominence among risk managers for the purpose of market risk measurement and control. Spurred by the increasing complexity and volume of trade in derivatives, and by the numerous headline cases of institutions sustaining enormous losses from their derivatives activities, risk managers have acknowledged the need for a unified risk measurement and management strategy. Furthermore, the regulatory authorities, recognising the systemic threat posed by the growth and complexity of derivatives trading, moved swiftly to address this problem. As a result, the European Union approved EC/93/6, "The Capital Adequacy Directive", which mandates financial institutions to quantify and measure risk on an aggregate basis and to set aside capital to cover potential losses which might accrue from their market positions. More recently, the Basle committee of the BIS published an amendment to the "Capital Accord" which makes provision for the use of proprietary in-house models to be employed instead of the original framework. The proposed basis of these in-house models is the value-at-risk framework. In this paper, we present an introductory exposition to the concept of Value-at-risk describing, among other things, the methods commonly employed in its calculation, and a brief critique of each.

Suggested Citation

  • Frain, John & Meegan, Conor, 1996. "Market Risk: An introduction to the concept & analytics of Value-at-risk," Research Technical Papers 7/RT/96, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:7/rt/96
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    References listed on IDEAS

    as
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    Cited by:

    1. John C. Frain, 2008. "Value at Risk (VaR) and the alpha-stable distribution," Trinity Economics Papers tep0308, Trinity College Dublin, Department of Economics, revised May 2008.
    2. Kah Chon, Ooi, 2019. "Impacts Of Firm-Specific Factors And Macroeconomic Factors Against Microsoft’S Performance," MPRA Paper 97254, University Library of Munich, Germany, revised 15 Nov 2019.
    3. Zulamir Hassani, Afdhal, 2019. "The Relationship Between Liquidity Risk and Internal and External Factors in TCL Corporation," MPRA Paper 97208, University Library of Munich, Germany, revised 20 Nov 2019.
    4. Ong, Kah Weng, 2019. "The Effects Of Internal Factors And External Factors On Yum! Brands, Inc Performance," MPRA Paper 97267, University Library of Munich, Germany.
    5. Chai, Wei Jian, 2019. "The Effects Of Liquidity Risk And Market Risk On Mcdonald’S Corporation Performance From 2014 To 2018," MPRA Paper 97268, University Library of Munich, Germany, revised 15 Nov 2019.
    6. Chong, Sze Chin, 2019. "An Analysis of the External and Internal Factors Affecting Honda Motor Company’s Performance," MPRA Paper 97206, University Library of Munich, Germany, revised 18 Nov 2019.
    7. Ng, Soon Siang, 2019. "An Analysis of the External and Internal Factors Affecting Subaru Corporation’s Performance," MPRA Paper 97200, University Library of Munich, Germany, revised 18 Nov 2019.

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