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Topic: Business
Number of pages / Number of words: 4 / 959
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The three most popular approaches are

  • linear approximation (“Delta method”)
  • quadratic approximation (“Delta-Gamma method”)
  • full revaluation of positions

2.3 The Internal Models Approach to Market Risk Capital

A bank must obtain the approval of the regulator before it can use its own internal VaR model...


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The regulator will satisfy itself as to the adequacy and robustness of the model. Further, once a bank has calculated its VaR, the regulator requires the application of a multiplication factor. The multiplication factor will typically be 3, but the regulator may increase the factor in a range between 3 and 4 if it is concerned about a particular bank’s VaR model (Viney, C...


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