Chapter 40 - Regulation and Risk Management in the Greek Financial Markets

Abstract

This chapter presents the regulation and risk management in the Greek financial markets. Regulations and risk management are vital to the success and survival of the Greek Financial Markets, which experienced rather rapid growth recently. The Basle Committee's recommendations and the European Commission's Capital Adequacy Directive are applied to models developed internally by institutions for statistical measurement of potential market losses. The Greek banking system is in the process of applying Value-at-Risk (VaR) models to estimate exposure to market risks. Stable VaR models outperform the normal models for high values of the VaR confidence level. The stable models produced conservative and accurate 99% VaR estimates, which are preferred by regulators. The normal models underestimate potential losses in the case of the 99% VaR evaluation. The normal approach is satisfactory for the 95% VaR evaluation. The superiority of the VaR modeling with stable distributions over the traditional VaR modeling with normal distribution in evaluating the sensitivity to market risks in Greek financial markets is shown.