Capital adequacy and R-Squared: Difference between pages

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imported>Doug Williamson
(Cross refer to PLAC and GCLAC & categorise page.)
 
imported>Doug Williamson
(Create page. Sources: The Treasurer Feb 2018, p25 & KPMG-FINCAD webpage https://www.cmegroup.com/education/files/basics-of-hedge-effectiveness.pdf)
 
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1.
''Regression analysis and hedge effectiveness''.
The system of regulating banks (and other financial institutions) by requiring them to maintain minimum acceptable levels of capital, adequate to absorb their potential credit losses and other trading losses.


2.
R-squared is a measure of the goodness of fit between two variables.
The current minimum amount of risk weighted capital that banks are required to maintain in proportion to the risk assets that they assume, normally used in connection with the requirements laid down internationally by the Bank for International Settlements (BIS) and monitored by domestic central banks.  


Historically the BIS standard has been 8%.
In hedge effectiveness testing, it measures how closely the value of the hedging instrument tracks the value of the underlying exposure being hedged.
 
An R-squared parameter equal to or greater than 0.80 is generally considered effective.
 
 
Other metrics for hedge effectiveness include Slope.


Under Basel III this standard will be increased (strengthened) substantially - very roughly doubled - and its measurement will be refined.


== See also ==
== See also ==
* [[Bank for International Settlements]]
* [[Basis risk]]
* [[Basel II]]
* [[Efficiency]]
* [[Basel III]]
* [[Hedge]]
* [[Capital Adequacy Directive]]
* [[Hedge accounting]]
* [[Capital Requirements Directive]]
* [[Hedge effectiveness]]
* [[PLAC]]
* [[Regression analysis]]
* [[GCLAC]]
* [[Slope]]
* [[Microprudential]]
* [[Settlement risk]]
* [[Slotting]]
 
[[Category:Compliance_and_audit]]

Revision as of 18:32, 3 February 2018

Regression analysis and hedge effectiveness.

R-squared is a measure of the goodness of fit between two variables.

In hedge effectiveness testing, it measures how closely the value of the hedging instrument tracks the value of the underlying exposure being hedged.

An R-squared parameter equal to or greater than 0.80 is generally considered effective.


Other metrics for hedge effectiveness include Slope.


See also

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