Reports
Austrian Bank Holidays in 1999
Calendar of Monetary Highlights
The OeNB’s Task and Duties in the ESCB
Economic Outlook for Austria from 1998 to the Year 2000
Economic Background
Money and Credit in the First Three Quarters of 1998
Balance of Payments in the First Half of 1998
Studies
Credit Risk Models and Credit Derivatives
Given the discrepancy between the capital charge required by the 1988 Basle Capital Accord and the economically sound capital allocation, numerous major banks have in recent years designed complex mathematical-statistical models to quantify credit risk. The use of such credit risk models allows for hedging quantified credit risks via appropriate financial instruments. The development of credit risk models, thus, goes hand in hand with the design of credit derivatives. Credit derivatives for the first time facilitate an active risk management of both individual credits and entire credit portfolios and significantly boost the market liquidity of credits. This paper presents and compares two commonly used approaches to modeling credit risks and investigates in how far credit derivatives could underpin active credit risk management.
A Comparison of Value at Risk Approaches and Their Implications for Regulators
This paper deals with several issues concerning Value at Risk (VaR) models. The authors use variance-covariance methods and historical simulation approaches to estimate daily VaR numbers for 20 randomly chosen foreign exchange portfolios over a period of 1,000 days. In addition, the authors apply a new method that deals with fat-tailed distributions of risk factors. The paper investigates whether VaR estimates generated by means of different methods are suitable for drawing comparisons across financial institutions. Although all models rely on the same parameters (confidence level, holding period), the findings indicate that comparing VaR numbers across different financial institutions may produce misleading results. The authors of this paper also examine how accurately the VaR estimates of the models match the specified confidence intervals. The new methodology shows the best performance with regard to the portfolios analyzed in this paper.
The opinions expressed in the section “Studies” are those of the individual authors and may differ from the views of the Oesterreichische Nationalbank.