On the Necessity of Five Risk Measures

2011/11/18 by Dominique Guégan, Guégan, Dominique, Wayne Tarrant +1
Business, Management and Accounting · Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #FOS: Economics and business #Insurance and Financial Risk Management #Risk Management (q-fin.RM) #Risk Management in Financial Firms #Statistical Finance (q-fin.ST)

paper · pdf · doi:10.48550/arxiv.1111.4414

openalex publication_date 2011/11/18 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

The banking systems that deal with risk management depend on underlying risk measures. Following the Basel II accord, there are two separate methods by which banks may determine their capital requirement. The Value at Risk measure plays an important role in computing the capital for both approaches. In this paper we analyze the errors produced by using this measure. We discuss other measures, demonstrating their strengths and shortcomings. We give examples, showing the need for the information from multiple risk measures in order to determine a bank's loss distribution. We conclude by suggesting a regulatory requirement of multiple risk measures being reported by banks, giving specific recommendations.

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