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Market Risk Measurement

Preliminary Lessons from the COVID-19 Crisis

Emese Lazar    ICMA Centre, Henley Business School, University of Reading, UK    

Ning Zhang    ICMA Centre, Henley Business School, University of Reading, UK    

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abstract

This chapter presents a preliminary analysis on how some market risk measures dramatically increased during the COVID-19 pandemic, with measures computed over longer horizons experiencing more pronounced effects. We provide examples when regulatory market risk measurement proved to be suboptimal, overestimating risk. A further issue was the large number of Value-at-Risk ‘exceptions’ during the first few months of the crisis, which normally leads to overinflated bank capital requirements. The current regulatory framework should address these problems by suggesting improvements to the calculation of risk measures and/or by modifying the rules which determine capital requirements to make them appropriate and realistic in crisis situations.

Published
July 31, 2020
Accepted
June 30, 2020
Submitted
June 3, 2020
Language
EN
ISBN (EBOOK)
978-88-6969-442-4

Keywords: MeasurementRegulationBaselMarket riskValue-at-RiskExpected Shortfall

Copyright: © 2020 Emese Lazar, Ning Zhang. This is an open-access work distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction is permitted, provided that the original author(s) and the copyright owner(s) are credited and that the original publication is cited, in accordance with accepted academic practice. The license allows for commercial use. No use, distribution or reproduction is permitted which does not comply with these terms.