Market risk in financial sector
| dc.contributor.author | Kalantzi, Alexia | en |
| dc.date.accessioned | 2015-03-23T12:15:23Z | |
| dc.date.available | 2015-09-27T06:05:02Z | |
| dc.date.issued | 2015-03-23 | |
| dc.identifier.uri | https://repository.ihu.edu.gr/xmlui/handle/11544/37 | |
| dc.rights | Default License | |
| dc.title | Market risk in financial sector | en |
| heal.abstract | Market risk is normally associated with instruments traded on well defined markets, though increasingly, techniques are used to assess the risk arising from over the counter instruments, and/or traded items where the market is not very liquid. The value of any instrument will be a function of price, coupon, coupon frequency, time, interest rate and other factors. If a bank is holding instruments on account (for example equities, bonds), then it is exposed to market risk, the risk that the price of the instrument will be volatile. Systematic market risk is caused by a movement in the prices of all market instruments because of, for example, a change in economic policy. Unsystematic market risk arises in situations where the price of one instrument moves out of line with other similar instruments, because of an event related to the issuer of the instrument. Value at risk (VaR) has become the standard measure that financial analysts use to quantify market risk. VaR is defined as the maximum potential change in value of a 3 portfolio of financial instruments with a given probability over a certain horizon. More specific, it is the maximum loss which can occur with X% confidence over a holding period of n days. The results produced by a VaR model are simple for all levels of staff from all areas of an organization to understand and appreciate. That is why VaR has been adopted so rapidly. Increased volatility of financial markets and rapid enhancement of computer systems gave banks an important characteristic. Bank would now be a risk manager compared to their former “traditional” role. The science of risk management is not a mature field of knowledge but it constantly evolves. The most prominent of risks – on which a bank is exposed – is market risk since it reflects the potential economic loss caused by the decrease in the market value of a portfolio. Value at Risk (VaR) is the most common measure that financial analysts, banks and supervisors use to measure market risk. The concept of systematic risk has played an important role in finance since Markowitz formalized the notion that investors should hold a diversified portfolio under uncertainty. There have been lots of financial studies concerning beta coefficient: its estimation has “traditionally” been achieved by running a market model regression. Is it important for a company and the investor too? What about the stability of beta and its behavior in bull and bear markets? May the downside risk, as measured by the beta corresponding to bear market, be an appropriate measure of portfolio risk? All of these questions and more other will be answered, in order to be clarified, after reading the paper, what market risk is, which are the specific risks that modern banks have to measure, what Value at Risk is and how we can use it to measure all of these risks, what other types of risk measurement exists, what beta coefficient is and what systematic risk is. On this project the VaR approach and the most popular coefficient in finance, beta, will be presented while trying to analyze market risk, on which a bank is exposed. Beta coefficient of five Greek banks’ stocks will be defined in bull and bear markets using Ordinary Least Squares regression (OLS). The VaR of a hypothetical portfolio will be also estimated using “beta model” and will be compared to the variance – covariance method. | en |
| heal.academicPublisher | School of Economics, Business Administration and Legal Studies, MSc in Banking and Finance | en |
| heal.academicPublisherID | ihu | |
| heal.access | free | el |
| heal.advisorName | Chalamandaris, Dr G | en |
| heal.bibliographicCitation | Kalantzi Alexia, 2011, Market risk in financial sector : value at risk (VaR) and systematic risk, Master's Dissertation , international Hellenic University | en |
| heal.committeeMemberName | Chalamandaris, Dr G | en |
| heal.committeeMemberName | Kosmidou Kyriaki | en |
| heal.fullTextAvailability | true | |
| heal.keyword | Financial futures | en |
| heal.keyword | Risk management | en |
| heal.keyword | Banks and banking--Risk management | en |
| heal.keyword | Bank management | en |
| heal.keyword | Financial risk management | en |
| heal.keyword | Dissertations, Academic | en |
| heal.language | en | |
| heal.license | http://creativecommons.org/licenses/by-nc/4.0 | |
| heal.numberOfPages | 37 | |
| heal.publicationDate | 2011 | |
| heal.recordProvider | School of Economics, Business Administration and Legal Studies, MSc in Banking and Finance | |
| heal.secondaryTitle | Value at risk (VaR) and systematic risk | en |
| heal.tableOfContents | ntents Abstract 3 Introduction 4 CHAPTER 1: Market risk in modern banks and VaR estimation 5 1.1. Modern bank and financial risks 5 1.1.1. A crisis of historic proportions 5 1.1.2. Crisis management 6 1.1.3. Developments in financial sector 7 1.1.4. Why is risk management needed? 8 1.1.5. Bank portfolio 8 1.2. Market risk and Value at Risk in a financial institution 10 1.2.1. Measuring market risk 10 2 1.2.2. What is Value at Risk (VaR)? 12 1.2.3. History of VaR 13 1.2.4. Variants of VaR 14 1.2.5. Measuring VaR 14 1.2.6. Comparison of VaR methodologies 19 1.2.7. Ways VaR can be used 20 1.2.8. Limitations of VaR 20 1.2.9. Supplementary risk measures 21 CHAPTER 2: Portfolio VaR and Systematic Risk 22 2.1. Investment theories and VaR analysis 22 2.1.1. History of the modern portfolio theory 22 2.1.2. Markowitz Theory 23 2.1.3. Tobin’s Separation Theorem 24 2.1.4. Capital Asset Pricing Model (CAPM) 25 2.1.5. Capital Market Line (CML) 27 2.1.6. Security Market Line (SML) 27 2.1.7. Single Index Model (SIM) 28 2.1.8. Arbitrage Pricing Theory (APT) 29 2.2. Beta Coefficient 31 2.2.1. Beta Coefficient and Systematic Risk 31 2.2.2. Methods of estimating Beta 31 2.2.3. Beta stability: Fabozzi and Francis/Kim and Zumwalt/Chen research 33 2.2.4. Investors attitude towards risk 34 CHAPTER 3: Empirical Illustration 35 3.1. Collecting and analyzing data 35 CONCLUSION 38 REFERENCES 39 | en |
| heal.type | masterThesis |
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