Risk models (risk calculating models)

According to the definition in Section 1 (13) of the German Banking Act (KWG), time-based stochastic representations of changes in market prices or market values and market interest rates and their effects on the fair value of individual financial instruments or groups of financial instruments (potential risk amounts) based on the sensitivity of these financial instruments or groups of financial instruments to changes in the relevant risk-determining factors. – Based on the requirements of the German Banking Act (KWG), risk models contain mathematical-statistical structures and distributions for determining risk-describing indicators. In particular, this involves determining the extent and correlation of price, price and interest rate fluctuations (volatility, correlation) as well as the sensitivity of financial instruments and groups of financial instruments. These calculations are performed by means of appropriate computer-assisted procedures, notably time series analyses, by specialists in the field (risk calculating models comprise mathematical-statistical structures and distributions that are used for calculating key ratios which are determined by means of appropriate computer-assisted procedures, notably time series analyses). – See Meltdown Risk, Backtesting, Complacency, Internal Ratings Based Approach, Tier 1 Capital Ratio, Liquidity Crisis Plan, Risk Management, Risk Buffer, Risk Assessment System, Scenarios, Exceptional, Excessive, Forced Convertible Bond. – Cf. BaFin Annual Report 2003, pp. 102 ff, BaFin Annual Report 2004, pp. 88 ff. (modeling approaches and their reliability), pp. 100 ff. (recent development of measurement techniques; committees; supervisory fact sheets), BaFin Annual Report 2007, pp. 132 ff. (BaFin’s activities; overview) as well as BaFin’s respective annual report (“Risk Models” section), Deutsche Bundesbank’s June 2006 Monthly Report, pp. 35 ff. (more detailed calculation approaches for concentration risks under Basel II), BaFin’s 2008 Annual Report, pp. 56 (regulations for liquidity risk management), BaFin Annual Report 2009, pp. 140 ff. (more than half of systemically important banks were classified as problematic or even of concern in 2009), BaFin Annual Report 2010, p. 165 (fourteen institutions have BaFin confirmation that their internal risk model meets supervisory requirements), pp. 165 ff. (requirements for internal market risk model increased), BaFin’s 2013 Annual Report, pp. 62 ff. (legal and supervisory developments), and the respective BaFin Annual Report, chapter “Supervision of Banks, Financial Service Providers, and Payment Institutions,” section “Supervisory Action.”

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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