Skip to main content

Do banks underestimate VaR diversification?

Resource type
Thesis type
M.A. M.B.A.
Date created
Author: Lin, Jiawen
Author: Qin, Yannan
In this paper we study empirically the diversification effect in banks’ aggregated Value-at-Risk (VaR). Using actual data from the six largest Canadian commercial banks and five leading US commercial banks, we estimate the benchmark VaR based on individual VaRs for each risk factor and an historical correlation matrix, and then compare the benchmark with the aggregated VaR disclosed by the bank. Our main result is that the diversification effect reported by Canadian banks tends to be smaller than the one estimated by our correlation model over the period from 1999 to 2006. For the US banks, there is no supportive evidence for the underestimation of VaR diversification; however, there are very interesting results among different banks.
Copyright statement
Copyright is held by the author.
The author has not granted permission for the file to be printed nor for the text to be copied and pasted. If you would like a printable copy of this thesis, please contact
Scholarly level
Member of collection
Download file Size
etd3088.pdf 2 MB

Views & downloads - as of June 2023

Views: 0
Downloads: 1