Showing results 1 to 8 of approximately 8.(refine search)
Options positions: risk management and capital requirements
AUTHORS: Hendricks, Darryll; Shin, Soo; Walter, Stefan; Estrella, Arturo; Kambhu, John
Commentary on \\"Rebalancing the three pillars of Basel II.\\"
This paper was part of the conference "Beyond Pillar 3 in International Banking Regulation: Disclosure and Market Discipline of Financial Firms," cosponsored by the Federal Reserve Bank of New York and the Jerome A. Chazen Institute of International Business at Columbia Business School, October 2-3, 2003.
AUTHORS: Hendricks, Darryll
Netting agreements and the credit exposures of OTC derivatives portfolios
The rapid expansion of the over-the-counter derivative market has prompted dealers to lessen their credit risk exposure by adopting bilateral closeout netting agreements. This article shows that netting agreements will not only reduce current credit exposure but under certain circumstances will also dampen fluctuations in the volatility of dealers' exposures. Thus, netting agreements may limit potential credit exposure, or the possibility that credit exposure will increase over a fixed time horizon.
AUTHORS: Hendricks, Darryll
The price risk of options positions: measurement and capital requirements
This article evaluates supervisory approaches to the measurement and capital treatment of the price risk of options positions. The authors find that approximate value-at-risk rules tend to provide better estimates of potential losses than simple strategy-based rules. The value-at-risk rules are particularly effective when they adjust for nonlinear changes in options prices. The authors also consider the reporting burdens posed by the different approaches and the consistency of the rules with existing and proposed supervisory frameworks.
AUTHORS: Estrella, Arturo; Hendricks, Darryll; Kambhu, John; Shin, Soo; Walter, Stefan
Bank capital requirements for market risk: the internal models approach
The increases prominence of trading activities at many large banking companies has highlighted bank exposure to market risk-the risk of loss from adverse movements in financial market rates and prices. In response, bank supervisors in the United States and abroad have developed a new set of capital requirements to ensure that banks have adequate capital resources to address market risk. This paper offers an overview of the new requirements, giving particular attention to their most innovative feature: a capital charge calculated for each bank using the output of that bank's internal risk measurement model. The authors contend that the use of internal models should lead to regulatory capital charges that conform more closely to banks' true risk exposures. In addition, the information generated by the models should allow supervisors and market participants to compare risk exposures over time and across institutions.
AUTHORS: Hirtle, Beverly; Hendricks, Darryll
Why we do what we do: the views of bankers, insurers, and securities firms on specialization and diversification
AUTHORS: Stiroh, Kevin J.; Heckinger, Richard; Candito, Tony; Hendricks, Darryll; Castellano, Michael J.; moderator; presenters
Evaluation of value-at-risk models using historical data
We study the effect of restrictions on dual trading in futures contracts. Previous studies have found that dual trading restrictions can have a positive, negative, or neutral effect on market liquidity. In this paper, we propose that trader heterogeneity may explain these conflicting empirical results. We find that, for contracts affected by restrictions, the change in market activity following restrictions differs between contracts. More important, the effect of a restriction varies among dual traders in the same market. For example, dual traders who ceased trading the S&P 500 index futures following restrictions had the highest personal trading skills prior to restrictions. However, realized bid-ask spreads for customers did not increase following restrictions. Our results imply that securities regulation may adversely affect customers, but in ways not captured by broad-based liquidity measures, such as the bid-ask spread.
AUTHORS: Hendricks, Darryll
Appendix B: Systemic risk and the financial system (background paper)
The Federal Reserve Bank of New York released a report -- New Directions for Understanding Systemic Risk -- that presents key findings from a cross-disciplinary conference that it cosponsored in May 2006 with the National Academy of Sciences' Board on Mathematical Sciences and Their Applications. ; The pace of financial innovation over the past decade has increased the complexity and interconnectedness of the financial system. This development is important to central banks, such as the Federal Reserve, because of their traditional role in addressing systemic risks to the financial system. ; To encourage innovative thinking about systemic issues, the New York Fed partnered with the National Academy of Sciences to bring together more than 100 experts on systemic risk from 22 countries to compare cross-disciplinary perspectives on monitoring, addressing and preventing this type of risk. ; This report, released as part of the Bank's Economic Policy Review series, outlines some of the key points concerning systemic risk made by the various disciplines represented -including economic research, ecology, physics and engineering - as well as presentations on market-oriented models of financial crises, and systemic risk in the payments system and the interbank funds market. The report concludes with observations gathered from the sessions and a discussion of potential applications to policy. ; The three papers presented in this conference session highlighted the positive feedback effects that produce herdlike behavior in markets, and the subsequent discussion focused in part on means of encouraging heterogeneous investment strategies to counter such behavior. Participants in the session also discussed the types of models used to study systemic risk and commented on the challenges and trade-offs researchers face in developing their models.
AUTHORS: Kambhu, John; Hendricks, Darryll; Mosser, Patricia C.