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Stress Tests of Capital Requirements


Elroy Dimson


London Business School; University of Cambridge - Judge Business School

Paul Marsh


London Business School - Institute of Finance and Accounting
October 1996

96-50

Abstract:     
This paper examines the performance of the leading methods for setting capital requirements for securities firms' trading books. Tests are conducted on a large sample of UK equity market makers' books over a substantial number of periods of equity market stress from 1985 to 1995. The comprehensive and building-block approaches, favored by US and European regulators, fail to provide effective cover. Only portfolio-based, value-at-risk type models are efficient in providing appropriate levels of capital to cover the position risk of equity trading books.

Number of Pages in PDF File: 30

JEL Classification: D81, G31

working papers series


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Date posted: January 28, 1997  

Suggested Citation

Dimson, Elroy and Marsh, Paul, Stress Tests of Capital Requirements (October 1996). 96-50. Available at SSRN: http://ssrn.com/abstract=2219 or http://dx.doi.org/10.2139/ssrn.2219

Contact Information

Elroy Dimson (Contact Author)
London Business School ( email )
Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
44 20 7000 7000 (Phone)
44 700 607 7390 (Fax)
HOME PAGE: http://www.london.edu/faculty/edimson
University of Cambridge - Judge Business School
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
Paul Marsh
London Business School - Institute of Finance and Accounting ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
Feedback to SSRN (Beta)


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