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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page How Accurate Are Value-at-Risk Models at Commercial Banks?
Jeremy Berkowitz and James O'Brien

Abstract: In recent years, the trading accounts at large commercial banks have grown substantially and become progressively more diverse and complex. We provide descriptive statistics on the trading revenues from such activities and on the associated Value-at-Risk forecasts internally estimated by banks. For a sample of large bank holding companies, we evaluate the performance of banks' trading risk models by examining the statistical accuracy of the VaR forecasts. Although a substantial literature has examined the statistical and economic meaning of Value-at-Risk models, this article is the first to provide a detailed analysis of the performance of models actually in use.

Keywords: Market risk, portfolio model, value-at-risk, volatility

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Last update: July 24, 2001