Original Research

Trading book risk metrics: A South African perspective

Gary Wayne van Vuuren, Dirk Visser
South African Journal of Economic and Management Sciences | Vol 19, No 1 | a1316 | DOI: https://doi.org/10.4102/sajems.v19i1.1316 | © 2016 Gary Wayne van Vuuren, Dirk Visser | This work is licensed under CC Attribution 4.0
Submitted: 15 February 2015 | Published: 02 March 2016

About the author(s)

Gary Wayne van Vuuren, North West University & Fitch Ratings, UK, United Kingdom
Dirk Visser, North West University, Potchefstroom Campus, South Africa

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Abstract

The regulatory market risk metric – Value at Risk – has remained virtually unchanged since its introduction by JP Morgan in 1996. Many prominent examples of market risk underestimation have undermined the credibility of VaR, prompting the search for better, more robust measures. Expected shortfall and procyclical capital buffers have been proposed by regulatory authorities, but neither is without problems. Bubble VaR – a coherent measure which avoids many of the pitfalls to which other measures have succumbed – was designed to be both forward-looking and countercyclical. Although tested on other markets, here it is applied to various South African prices and the results compared with both international observations and other market risk measures. Bubble VaR is found to perform consistently and reliably under all market conditions.

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Crossref Citations

1. Filter selection for countercyclical capital buffers
Dirk Visser, Gary Van Vuuren
South African Journal of Economic and Management Sciences  vol: 21  issue: 1  year: 2018  
doi: 10.4102/sajems.v21i1.1744