Interest Rate Risk in the Banking Book (IRRBB) – Comparing Variance/Covariance with Historical Simulation and Several Copula Functions with Focus on the Actual EBA Guidelines
| Authors | |
|---|---|
| Year of publication | 2018 |
| Type | Article in Proceedings |
| Conference | European Financial Systems 2018 - Proceedings of the 15th International Scientific Conference |
| MU Faculty or unit | |
| Citation | |
| web | https://is.muni.cz/do/econ/sborniky/2018/Proceedings_finalni_verze_September_3.pdf |
| Keywords | Interest Rate Risk; Banking Book; IRRBB; Variance/Covariance; Historical Simulation; Copula; EBA Guidelines |
| Description | Interest rate risk and its measurement are important for banks worldwide. Strategic maturity transformation positions in combination with the historical low level of yields leads to the question, whether the standard risk measurement models as variance/covariance or historical simulation lead do adequate results. This article answers this question and offers an empirical analysis in which several alternative Copula functions are used to quantify interest rate risk. The results are compared to the EBA guidelines on IRRBB. The aim is to show if the six interest rate risk scenarios that are defined by the EBA are an adequate measurement method. |
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