An Academic Response to Basel 3.5

By Paul Embrechts, Ludger Rüschendorf, Ruodu Wang, Antonela Beleraj. 2014

220 citations recorded by the source corpus.

Recent crises in the financial industry have shown weaknesses in the modeling of Risk-Weighted Assets (RWAs). Relatively minor model changes may lead to substantial changes in the RWA numbers. Similar problems are encountered in the Value-at-Risk (VaR)-aggregation of risks. In this article, we highlight some of the underlying issues, both methodologically, as well as through examples. In particular, we frame this discussion in the context of two recent regulatory documents we refer to as Basel 3.5.

Subfields: Economics and Econometrics, Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/c0430a598d7d1333173c4c44b38466721957f2e3

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Citations in the corpus

Of quantiles and expectiles: consistent scoring functions, Choquet representations and forecast rankings (2015, background): “The foregoing discussion may also bear on the debate about the revision of the Basel protocol for banking regulation, which involves contention about the choice of the functional of in-house risk distributions that banks are supposed to report to regulators (Embrechts et al., 2014).”
Quantifying Distributional Model Risk via Optimal Transport (2016, unknown): “From the insurer’s point of view, due to the model uncertainty the contract is faced with, it is not uncommon to increase the premium income (or) initial capital by a factor of 3 or 4 (referred as “hysteria factor”, see Embrechts et al. (1998), Lewis (2007)).”
Risk management with expectiles (2017, unknown): “…expected loss function as in Equation (1) is said to be elicitable; we refer to Gneiting (2011), Bellini and Bignozzi (2013), Ziegel (2014), Embrechts et al. (2014), Davis (2013) and Acerbi and Szekely (2014) for further information about the elicitability property and its financial…”
Forecasting Value at Risk and Expected Shortfall Using a Semiparametric Approach Based on the Asymmetric Laplace Distribution (2019, background): “Future regulatory frameworks are likely to put increased emphasis on ES (Embrechts et al. 2014).”