Cahit Memiş MSc., Financial Engineering and Risk Management

Cahit Memiş MSc., Financial Engineering and Risk Management

Title: Backtesting the Modified VaR and Expected Shortfall Methods: For Non-Linear Portfolios within Basel Accords

Date: May 11, Friday
Time:  11:00
Location: AB2 345

Thesis Committee:
Dr. Muzaffer Akat, (Advisor) Özyeğin University
Assoc. Prof. Atakan Yalçın, Özyeğin University
Assoc. Prof. Giray Gözgör, İstanbul Medeniyet University

Abstract:
The banks have to measure the market risk daily for the calculation of their capital adequacy. According to the Fundamental Review of Trading Book (FRTB) market risk revision, which was released in 2016 by the Basel Committee on Banking Supervision (BCBS), the expected shortfall (ES) will replace the value-at-risk (VaR) approach in order to capture the tail risks. In this paper, various risk management methodologies have been compared based on their performances using both the VaR and the ES. The data are based on three different currencies (USD/TRY, EUR/TRY, and EUR/USD) for the period from Jan 2nd, 2007 to Jan 4th, 2017. The methodologies have been applied to several portfolios of assets, ranging from a linear one (pure FX Position) to highly non-linear one (complex derivative securities on FX). The binomial backtest method is used for comparing backtesting performance and the empirical results indicate that the ES method, in lieu of the VaR methods, ensures the significant reduction in the capital adequacy for the semi-parametric models. In addition, the ES yields a considerable capital adequacy reduction compared to the VaR in linear portfolios. The reduction in loses strengths as the portfolios get more non-linear. These findings mainly highlight the importance of the convexity and the subadditivity features of the non-linear portfolios.

Bio:
Cahit Memiş received the BA degree in Econometrics from Istanbul University in June, 2006 and he is pursuing an MS in Financial Engineering at Özyeğin University under the supervision of Asst. Prof. Muzaffer Akat. Beside his academic work, Mr. Memiş is working at RiskActive as Senior Consultant.