engleski

Implications of actively managing market risk via Value at Risk methodology in commercial banks

An important aspect of business for every commercial bank is trading financial instruments in capital markets. Trading in various classes and types of securities exposes banks to new forms of risks that are not well understood in developing countries. Market risk represents the risk that the changes in market prices and rates will reduce the value of security or a portfolio. In trading activities, market risk arises from two sources: open or unhedged positions taken by a bank and from imperfect correlation between market positions. In this paper the author examines the implications for a commercial bank of using the standardized approach developed by Basel committee on Banking supervision for measuring market risk versus the internally developed rating systems for measuring market risk, such as VaR. Using internally developed models, such as VaR, can allow banks to lower their capital charge and free extra resources for conducting normal business activities. The concept of standardized measurement method for market risk together with its’ pros and cons is presented and compared to the characteristics and general quantitative and qualitative standards required for internal models of measurement.

Basel II; market risk; VaR; bank reserves

nije evidentirano