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The price risk of options positions: measurement and capital requirements

Author

Listed:
  • Arturo Estrella
  • Darryll Hendricks
  • John Kambhu
  • Soo Shin
  • Stefan Walter

Abstract

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.

Suggested Citation

  • Arturo Estrella & Darryll Hendricks & John Kambhu & Soo Shin & Stefan Walter, 1994. "The price risk of options positions: measurement and capital requirements," Quarterly Review, Federal Reserve Bank of New York, vol. 19(Sum), pages 44-75.
    • Handle: RePEc:fip:fednqr:y:1994:i:sum:p:44-75:n:v.19no.2
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    Citations

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    Cited by:

    1. Beate Reszat, 1997. "Sources of increasing systemic risk in international financial markets," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 32(5), pages 211-219, September.
    2. Wilson Calmon & Eduardo Ferioli & Davi Lettieri & Johann Soares & Adrian Pizzinga, 2021. "An Extensive Comparison of Some Well‐Established Value at Risk Methods," International Statistical Review, International Statistical Institute, vol. 89(1), pages 148-166, April.
    3. Andrew Powell & Veronica Balzarotti, 1997. "Capital Requirements for Latin American Banks in Relation to their Market Risks: The Relevance of the Basle 1996 Amendment to Latin America," Research Department Publications 4072, Inter-American Development Bank, Research Department.
    4. Vlaar, Peter J. G., 2000. "Value at risk models for Dutch bond portfolios," Journal of Banking & Finance, Elsevier, vol. 24(7), pages 1131-1154, July.
    5. Andrew Powell & Veronica Balzarotti, 1997. "Requisitos de capital de los bancos latinoamericanos en relación con sus niveles de riesgo de mercado: importancia de la Enmienda de Basilea de 1996 para América Latina," Research Department Publications 4073, Inter-American Development Bank, Research Department.
    6. Michel Aglietta, 1996. "Financial Market Failures and Systemic Risk," Working Papers 1996-01, CEPII research center.
    7. Ming-Yuan Leon Li & Hsiou-wei William Lin, 2004. "Estimating value-at-risk via Markov switching ARCH models - an empirical study on stock index returns," Applied Economics Letters, Taylor & Francis Journals, vol. 11(11), pages 679-691.

    More about this item

    Keywords

    options; Risk;

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