Risk‐return optimization with different risk‐aggregation strategies

Emerald - 2010
StanUryasev1, Ursula A.Theiler2, GaiaSerraino3
1University of Florida, Gainesville, Florida, USA
2Risk Training, Kleinmachnow, Germany
3American Optimal Decisions, Inc., Austin, Texas, USA

Tóm tắt

PurposeNew methods of integrated risk modeling play an important role in determining the efficiency of bank portfolio management. The purpose of this paper is to suggest a systematic approach for risk strategies formulation based on risk‐return optimized portfolios, which applies different methodologies of risk measurement in the context of actual regulatory requirements.Design/methodology/approachOptimization problems to illustrate different levels of integrated bank portfolio management has been set up. It constrains economic capital allocation using different risk aggregation methodologies. Novel methods of financial engineering to relate actual bank capital regulations to recently developed methods of risk measurement value‐at‐risk (VaR) and conditional value‐at‐risk (CVaR) deviation are applied. Optimization problems with the portfolio safeguard package by American Optimal Decision (web site: www.AOrDA.com) are run.FindingsThis paper finds evidence that risk aggregation in Internal Capital Adequacy Assessment Process (ICAAP) should be based on risk‐adjusted aggregation approaches, resulting in an efficient use of economic capital. By using different values of confidence level α in VaR and CVaR, deviation, it is possible to obtain optimal portfolios with similar properties. Before deciding to insert constraints on VaR or CVaR, one should analyze properties of the dataset on which computation are based, with particular focus on the model for the tails of the distribution, as none of them is “better” than the other.Research limitations/implicationsThis study should further be extended by an inclusion of simulation‐based scenarios and copula approaches for integrated risk measurements.Originality/valueThe suggested optimization models support a systematic generation of risk‐return efficient target portfolios under the ICAAP. However, issues of practical implementation in risk aggregation and capital allocation still remain unsolved and require heuristic implementations.

Từ khóa


Tài liệu tham khảo

Acerbi, C. and Tasche, D. (2002), “On the coherence of expected shortfall”, Journal of Banking & Finance, Vol. 26 No. 7, pp. 1519‐33.

Artzner, P., Delbaen, F., Eber, J. and Heath, D. (1997), “Thinking coherently”, Risk Magazine, Vol. 10 No. 11, pp. 68‐71.

Artzner, P., Delbaen, F., Eber, J. and Heath, D. (1999), “Coherent measures of risk”, Mathematical Finance, Vol. 9 No. 3, pp. 203‐28.

Basel Committee on Banking Supervision (1988), International Convergence of Capital Measurement and Capital Standards, Basel Committee on Banking Supervision, Basel, July.

Basel Committee on Banking Supervision (1996), Amendment to the Capital Accord to Incorporate Market Risks, Bank for International Settlements, Basel, January.

Basel Committee on Banking Supervision (2004), International Convergence of Capital Measurement and Capital Standards – A Revised Framework, Basel Committee on Banking Supervision, Basel, June.

Bertsimas, D., Lauprete, G. and Samarov, A. (2004), “Shortfall as a risk measure: properties, optimization, and applications”, Journal of Economic Dynamics & Control, Vol. 28, pp. 1353‐81.

Denault, M. (2001), “Coherent allocation of risk capital”, Journal of Risk, Vol. 4 No. 1.

Furlong, F. and Keeley, M.C. (1990), “A reexamination of mean‐variance analysis of bank capital regulation”, Journal of Banking & Finance, Vol. 14, pp. 69‐84.

Hull, J. (2007), Risk Management and Financial Institutions, Prentice‐Hall, Upper Saddle River, NJ.

Jorion, P. (2000), Value at Risk: The New Benchmark for Managing Financial Risk, 2nd ed., McGraw‐Hill, New York, NY.

Kim, D. and Santomero, A.M. (1988), “Risk in banking and capital regulation”, Journal of Finance, Vol. 43, pp. 1219‐33.

Koehn, M. and Santomero, A.M. (1980), “Regulation of bank capital and portfolio risk”, Journal of Finance, Vol. 35, pp. 1235‐44.

Markowitz, H.M. (1952), “Portfolio selection”, Journal of Finance, Vol. 7 No. 1, pp. 77‐91.

Rochet, J.C. (1992), “Capital requirements and the behaviour of commercial banks”, European Economic Review, Vol. 36, pp. 1137‐78.

Rockafellar, R.T. and Uryasev, S. (2000), “Optimization of conditional value‐at‐risk”, The Journal of Risk, Vol. 2 No. 4, pp. 21‐51.

Rockafellar, R.T. and Uryasev, S. (2002), “Conditional value‐at‐risk for general loss distributions”, Journal of Banking & Finance, Vol. 26 No. 7, pp. 1443‐71.

Rockafellar, R.T., Uryasev, S. and Zabarankin, M. (2006a), “Generalized deviations in risk analysis”, Finance and Stochastics, Vol. 10, pp. 51‐74.

Rockafellar, R.T., Uryasev, S. and Zabarankin, M. (2006b), “Master funds in portfolio analysis with general deviation measures”, Journal of Banking & Finance, Vol. 30 No. 2.

Rosenberg, J. and Schuermann, T. (2006), “A general approach to integrated risk management with skewed, fat‐tailed risks”, Journal of Financial Economics, Vol. 79 No. 3, pp. 569‐614.

Sarykalin, S., Serraino, G. and Uryasev, S. (2008), “Value‐at‐risk vs conditional value‐at‐risk in risk management and optimization”, Tutorials in Operations Research, INFORMS 2008, Institute for Operations Research and the Management Sciences, Hanover, MD.

Tasche, D. (1999), “Risk contributions and performance measurement”, working paper, Technische Universitaet München, Munich.

Theiler, U. (2004), “Risk‐return management approach”, in Szegö, G. (Ed.), Risk Measures for 21st Century, Wiley, New York, NY, pp. 403‐33.

US Accounting Office (1998), Risk‐Based Capital – Regulatory and Industry Approaches to Capital and Risk, US Accounting Office, Washington, DC, July.

Yoshiba, T. and Yamai, Y. (2001a), Comparative Analyses of Expected Shortfall and Value‐at‐Risk: Their Estimation Error, Decomposition and Optimization, Institute for Monetary and Economic Studies, Bank of Japan, Tokyo.

Yoshiba, T. and Yamai, Y. (2001b), Comparative Analyses of Expected Shortfall and Value‐at‐Risk (2): Expected Utility Maximization and Tail Risk, Institute for Monetary and Economic Studies, Bank of Japan, Tokyo.

Bandyopadhyay, A., Chherawala, T. and Saha, A. (2007), “Calibrating asset correlation for Indian corporate exposures: implications for regulatory capital”, Journal of Risk Finance, Vol. 8 No. 4, pp. 330‐48.

Jobst, N. and Zenios, S. (2002), “The tail that wags the dog: integrating credit risk in asset portfolios”, Algo Research Quarterly, Vol. 5 No. 1, pp. 11‐22.

Mausser, H. and Rosen, D. (1999), “Frontiers for credit risk”, Algo Research Quarterly, Vol. 2 No. 4, pp. 35‐48.

Oesterreichische Nationalbank (2006), Leitfaden zur Gesamtbankrisikosteuerung (Guidelines for Integrated Bank Management), Internal Capital Adequacy Assessment Process, Vienna (in German).

Patrik, G., Bernegger, S. and Rüegg, M.B. (1999), “The use of risk adjusted capital to support business decision making”, Casualty Actuarial Society (Ed.), Casualty Actuarial Society Forum, Spring, 1999 Edition, Baltimore, MD.

Thông tin
Thông tin xuất bản

Emerald

Thông tin tác giả