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How Bankers Hedge Against the Market Risk: A Case Study of Jammu and Kashmir Bank

The Basic purpose of the study is to evaluate the market risk of Jammu and Kashmir bank. Further the Specific objectives of the study include (1) understanding the different types of Market Risks faced by the banks, (2) Evaluating what are the different tools which are used to evaluate the market risk of the banks (3) Evaluating the difference between the Internal Model approach and the Standard approach to account for market risk (4) How Historical Value at Risk (HVaR) is different from Standard approach assigned under BASEL norms. The study uses the data from five equity stocks and three debt stocks in which Jammu and Kashmir bank has invested for a period of 300 days prior from the date of investigation. The historical value at risk (HVaR) approach is used to identify the risk of each stock to compare it with the already set standard approach according to BASEL II. The findings of the study suggest that the internal model approach (HVaR) is very beneficial as compared to standard approach which sets a particular percentage to hedge against the market risk without analyzing the volatility of the stock. The implications of the study can be for banks and investors. Banks if have knowledge that they have invested in good stocks can used internal model based approach (HVaR) or any other approach rather than standard approach. Also investors can analyze what is the volatility of the stock and whether to invest in particular stock or not.