How Accurate are Value-at-Risk Models at Commercial Banks

28 Pages Posted: 28 Aug 2001

See all articles by Jeremy Berkowitz

Jeremy Berkowitz

University of Houston - Department of Finance

James M. O'Brien

Board of Governors of the Federal Reserve System - Trading Risk Analysis Section

Date Written: July 2001

Abstract

In recent years, the trading accounts at large commercial banks have grown substantially and become progressively more diverse and complex. We provide descriptive statistics on the trading revenues from such activities and on the associated Value-at-Risk forecasts internally estimated by banks. For a sample of large bank holding companies, we evaluate the performance of banks' trading risk models by examining the statistical accuracy of the VaR forecasts. Although a substantial literature has examined the statistical and economic meaning of Value-at-Risk models, this article is the first to provide a detailed analysis of the performance of models actually in use.

Keywords: Market risk, portfolio model, value-at-risk, volatility

JEL Classification: G21, G28

Suggested Citation

Berkowitz, Jeremy and O'Brien, James Michael, How Accurate are Value-at-Risk Models at Commercial Banks (July 2001). FEDS Working Paper No. 2001-31. Available at SSRN: https://ssrn.com/abstract=278547 or http://dx.doi.org/10.2139/ssrn.278547

Jeremy Berkowitz

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

James Michael O'Brien (Contact Author)

Board of Governors of the Federal Reserve System - Trading Risk Analysis Section ( email )

Washington, DC 20551
United States

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