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A survey of value-at-risk and its role in the banking industry

journal contribution
posted on 2006-01-01, 00:00 authored by J Ball, Victor Fang
This paper discusses the various aspects of Value-at-Risk (VaR) and the VaR-based risk management process as it pertains to the banking industry. Since its inception in the 1990’s, VaR has become the industry standard by which market risk is both measured and managed by financial institutions today. However, there has been much debate regarding VaR’s validity and the extent of its role within the banking industry. Yet, now that it is an integral part of the regulatory framework, establishing VaR’s legitimacy is more important than ever. Therefore, this paper examines the recent literature on VaR’s use as a market risk management tool within the banking environment in an attempt to clarify some of the more contentious issues which have been raised by researchers. The discussion begins by highlighting the underlying theory on which VaR is based, specific aspects which have proven controversial and its use from a regulatory perspective. The focus then turns to what little literature exists on the subject of VaR and asset returns in an attempt to provide some direction for future research.

History

Journal

Journal of financial education

Volume

32

Season

Winter

Pagination

1 - 31

Publisher

Finance Education Association

Location

Philadelphia, Pa.

ISSN

0093-3961

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal; C Journal article

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