Working paper No. 79
By Patricia Jackson, David J. Maude and William Perraudin
To measure the risks involved in their trading operations, major banks are increasingly employing Value-at-Risk (VaR) models. In an important regulatory innovation, the Basle Committee has proposed that such models be used in the determination of the capital that banks must hold to back their securities trading. This paper examines the empirical performance of different VaR models using data on the actual fixed income, foreign exchange and equity security holdings of a large bank. We examine how a bank applying the models would have fared in the past if the proposed rules had been in operation.