The Comparative Measurement of Market Risk and the Capital Charge Through Internal Model Approach: An Empirical Studi on Indonesia State-Owned Bank 2015

Embun Prowanta, Indra Siswanti, Nahdy Niza Mustafa


The objective of the study is to measure the capital charged by Net Open Position (NOP) of the market risk state-owned bank using internal model approach. Market risk management is a part of crucial activities for foreign exchange bank, which these is very related with bank business processes to get profit. So that the bank faces market risk that could lead to further losses if market risk can not be handled properly, then the losses incurred can be fatal to the bank capital that could cause financial loss and the bankruptcy. The adequacy of bank capital can overcome market risk if the bank suffers losses.Measurement of capital charge from market risk through Value at Risk (VaR) using Historical Simulation, Variance-Covariance and Monte-Carlo Simulation method. These method measure the foreign exchange rate volatility within the Bank's Net Open Position (NOP) on Internal Model Approach. Furthermore test the accuracy of the results of VaR models by using backtesting. The result of this study shows if there is different result in measuring VaR and Capital Charge through Historical Simulation, Variance-Covariance and Monte-Carlo simulation method because every method has different approach. Based on the result, it can be shown that Monte-Carlo Simulation becomes the best measurement because it provides detail information and appropriate measurement.

Keywords : Market Risk, Value at Risk, Capital Charge

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