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Contribution Details
| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Capital Requirements with Model Risk |
| Organization Unit | |
| Authors |
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| Language |
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| Institution | University of Zurich |
| Series Name | - |
| Number | - |
| Date | 2018 |
| Abstract Text | Model risk needs to be recognized and accounted for in addition to market risk. Uncertainty in risk measures estimates may lead to false security in financial markets. We argue that quantile type risk-measures are at least as good as expected shortfall. We demonstrate how a bank can choose among competing models for measuring market risk and account for model risk. Some BCBS capital requirements formula currently in effect leads to excessive capital buffers even on an unstressed basis. We highlight that the loss to society associated with the inefficient minimum capital requirements calculations is economically substantial over time. |
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