It Pays to Violate: How Effective are the Basel Accord Penalties?

The internal models amendment to the Basel Accord allows banks to use internal models to forecast Value-at-Risk (VaR) thresholds, which are used to calculate the required capital that banks must hold in reserve as a protection against negative changes in the value of their trading portfolios. As capital reserves lead to an opportunity cost to banks, it is likely that banks could be tempted to use models that underpredict risk, and hence lead to low capital charges. In order to avoid this problem the Basel Accord introduced a backtesting procedure, whereby banks using models that led to excessive violations are penalised through higher capital charges. This paper investigates the performance of five popular volatility models that can be used to forecast VaR thresholds under a variety of distributional assumptions. The results suggest that, within the current constraints and the penalty structure of the Basel Accord, the lowest capital charges arise when using models that lead to excessive violations, thereby suggesting the current penalty structure is not severe enough to control risk management. In addition, this paper suggests an alternative penalty structure that is more effective at aligning the interests of banks and regulators.GARCH;risk management;forecasting;Value-at-Risk (VaR);Basel accord penalties;simulations;violations

The Differentiation and Promotion of Students’ Rights in Portugal

This investigation includes a differential study (Study 1) and a quasi-experimental research (Study 2). In Study 1, the objective was to establish to what extent students’ rights existed and analyse the differentiation between students’ rights with Portuguese and immigrant mothers, throughout school years. The sample consisted of 537 students with Portuguese and immigrant mothers, distributed by different school years (7th, 9th and 11th grades). The Children’s Rights Scale (Hart et al., 1996; Veiga, 2001) was used. In Study 2, the purpose was to analyse the effects on students’ rights of the use by teachers of a communicational intervention program, supervised by school psychologists. The sample involved 7th and 9th grade students, in a total of four classes, two forming the experimental groups (n = 36) and two the control groups (n = 43); as in Study 1, the Children’s Rights Scale was used. The results indicated the effectiveness of the communicational intervention program on students’ rights and are consistent with previous studies. An implication is that psychologists and teachers, working together and taking a human rights perspective, may develop an important role in projects to promote the students’ rights

Lowest order Virtual Element approximation of magnetostatic problems

We give here a simplified presentation of the lowest order Serendipity Virtual Element method, and show its use for the numerical solution of linear magneto-static problems in three dimensions. The method can be applied to very general decompositions of the computational domain (as is natural for Virtual Element Methods) and uses as unknowns the (constant) tangential component of the magnetic field $\mathbf{H}$ on each edge, and the vertex values of the Lagrange multiplier $p$ (used to enforce the solenoidality of the magnetic induction $\mathbf{B}=\mu\mathbf{H}$). In this respect the method can be seen as the natural generalization of the lowest order Edge Finite Element Method (the so-called "first kind N\'ed\'elec" elements) to polyhedra of almost arbitrary shape, and as we show on some numerical examples it exhibits very good accuracy (for being a lowest order element) and excellent robustness with respect to distortions