Kleinknecht, Manuel and Ng, Wing Lon (2015) 'Minimizing Basel III Capital Requirements with Unconditional Coverage Constraint.' Intelligent Systems in Accounting, Finance and Management. ISSN 1055-615X

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Abstract

The new Basel III framework increases the banks’ market risk capital requirements. In this paper, we introduce a new risk management approach based on the unconditional coverage test to minimize the regulatory capital requirements. Portfolios optimized with our new minimum capital constraint successfully reduce the Basel III market risk capital requirements. In general, portfolios with value-at-risk and conditional-value-at-risk objective functions and underlying empirical distribution yield better portfolio risk profiles and have lower capital requirements. For the optimization we use the threshold-accepting heuristic and the common trust-region search method.

Item Type:	Article
Uncontrolled Keywords:	Basel III capital requirements; heuristic portfolio optimization; threshold accepting; unconditional coverage
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Science and Health > Computer Science and Electronic Engineering, School of > Centre for Computational Finance and Economic Agents
Depositing User:	Jim Jamieson
Date Deposited:	11 Jun 2015 11:29
Last Modified:	11 Jun 2015 11:29
URI:	http://repository.essex.ac.uk/id/eprint/13910

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