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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    



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.

keywords: Market risk. Measurement. Value-at-Risk. Expected Shortfall. Regulation. Basel.

Language: en

Submitted: June 3, 2020
Accepted: June 30, 2020
Published: July 31, 2020
permalink: http://doi.org/10.30687/978-88-6969-442-4/007

Creative Commons License This work is licensed under a Creative Commons Attribution 4.0 International License