James M. O'Brien
Federal Reserve Board of Governors
NBER Working Papers and Publications
|January 2007||Estimating Bank Trading Risk. A Factor Model Approach|
with Jeremy Berkowitz
in The Risks of Financial Institutions, Mark Carey and René M. Stulz, editors
|September 2005||Estimating Bank Trading Risk: A Factor Model Approach|
with Jeremy Berkowitz: w11608
Risk in bank trading portfolios and its management are potentially important to the banks%u2019 soundness and to the functioning of securities and derivatives markets. In this paper, proprietary daily trading revenues of 6 large dealer banks are used to study the bank dealers%u2019 market risks using a market factor model approach. Dealers%u2019 exposures to exchange rate, interest rate, equity, and credit market factors are estimated. A factor model framework for variable exposures is presented and two modeling approaches are used: a random coefficient model and rolling factor regressions. The results indicate small average market exposures with significant but relatively moderate variation in exposures over time. Except for interest rates, there is heterogeneity in market exposures acros...
Published: Carey, Mark and Rene M. Stulz (eds.) The Risks of Financial Institutions. Chicago and London: University of Chicago Press, 2006.