A note on estimating market-based minimum capital risk requirements: a multivariate GARCH approach
A note on estimating market-based minimum capital risk requirements: a multivariate GARCH approach
Internal risk management models of the kind popularized by J. P. Morgan are now used widely by the world's most sophisticated financial institutions as a means of measuring risk. Using the returns on three of the most popular futures contracts on the London International Financial Futures Exchange, in this paper we investigate the possibility of using multivariate generalized autoregressive conditional heteroscedasticity (GARCH) models for the calculation of minimum capital risk requirements (MCRRs). We propose a method for the estimation of the value at risk of a portfolio based on a multivariate GARCH model. We find that the consideration of the correlation between the contracts can lead to more accurate, and therefore more appropriate, MCRRs compared with the values obtained from a univariate approach to the problem.
666-681
Brooks, C.
91d99e42-37f5-4b2b-87a2-c3df0c926b5f
Clare, A. D.
1b9735f5-894c-4b70-9589-24ff619d9af8
Persand, G.
c1b50342-bfb4-4a40-9f03-b352ba2076f2
2002
Brooks, C.
91d99e42-37f5-4b2b-87a2-c3df0c926b5f
Clare, A. D.
1b9735f5-894c-4b70-9589-24ff619d9af8
Persand, G.
c1b50342-bfb4-4a40-9f03-b352ba2076f2
Brooks, C., Clare, A. D. and Persand, G.
(2002)
A note on estimating market-based minimum capital risk requirements: a multivariate GARCH approach.
The Manchester School, 70 (5), .
(doi:10.1111/1467-9957.00319).
Abstract
Internal risk management models of the kind popularized by J. P. Morgan are now used widely by the world's most sophisticated financial institutions as a means of measuring risk. Using the returns on three of the most popular futures contracts on the London International Financial Futures Exchange, in this paper we investigate the possibility of using multivariate generalized autoregressive conditional heteroscedasticity (GARCH) models for the calculation of minimum capital risk requirements (MCRRs). We propose a method for the estimation of the value at risk of a portfolio based on a multivariate GARCH model. We find that the consideration of the correlation between the contracts can lead to more accurate, and therefore more appropriate, MCRRs compared with the values obtained from a univariate approach to the problem.
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Published date: 2002
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Local EPrints ID: 35871
URI: http://eprints.soton.ac.uk/id/eprint/35871
ISSN: 1463-6786
PURE UUID: ea52b2b7-ed46-4867-8858-95291482e665
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Date deposited: 23 May 2006
Last modified: 15 Mar 2024 07:54
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Author:
C. Brooks
Author:
A. D. Clare
Author:
G. Persand
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