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October 10, 2025
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October 15, 2025
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October 28, 2025
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Abstract

Purpose — This study evaluates how well parametric Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR) models measure market risk from Jamaican banks’ sovereign bond exposures.
Method — We calibrate VaR and CVaR models using banks’ aggregate portfolio holdings across the entire financial system.
Findings — The parametric VaR model performs reliably, passing standard statistical tests for consistency, independence, and reliability.
Implications — The results suggest that these standard risk measures effectively capture Jamaican banks’ market risk exposure to foreign currency-denominated sovereign bonds, which could serve as a helpful tool for regulators to monitor market risk and financial system stability.
Originality — This research applies VaR and CVaR to a novel dataset of Jamaica’s entire financial system, demonstrating how regulators can transition from the currently prescribed methods. The findings indicate that these standard risk measures effectively capture risk charges for market risk assessment, as allowed under Basel II, and align with more modern Basel-style frameworks.

Keywords

Value-at-Risk Conditional VaR Gaussian Distribution Jamaican Bonds Back Testing Basel II

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Copyright (c) 2025 Kishan Clarke, Robert Stennett

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Author Biography

Robert Stennett, Bank of Jamaica, Kingston, Jamaica

Mr. Robert Stennett is Deputy Governor of the Bank of Jamaica. His central banking career spans over 26 years and his previous roles at the Bank of Jamaica include head of the Research and Economic Programming Division (REPD) and Senior Financial Analyst in the Governor’s Office, charged with supporting the Governor in his duties relating to the formulation and implementation of monetary policy.  Before joining the Central Bank, Mr. Stennett taught Economics and Statistics at the University of Technology.

Mr. Stennett earned a bachelor’s degree (1989) and a master’s degree in Economics (1995) from the University of the West Indies. He also holds a postgraduate diploma in Information Technology (2007) from the Mona Institute of Applied Sciences. Mr. Stennett was selected as Jamaica’s Hubert Humphrey Fellow in 2009, where he studied finance at the School of Management at Boston University. Mr. Stennett has had training in advanced econometrics (Swiss National Bank), financial programming (IMF) and Macroeconomic Modelling (Bank of Canada). He has co-authored a book on the first 40 years of Bank of Jamaica, participated as a member of Jamaica’s Trade Delegation Team at the WTO and served as Alternate Governor on the Board of the Centre for Latin American Monetary Studies (CEMLA). As part of his programme of activities under the HH fellowship, Mr. Stennett was professionally attached to State Street Global Bank in Boston and at the International Monetary Fund.

He is married and the father of three children.

How to Cite
Clarke, K., & Stennett, R. (2025). Quantifying mark-to-market risk in Jamaica’s banking sector. Economic Journal of Emerging Markets, 17(2), 124–142. https://doi.org/10.20885/ejem.vol17.iss2.art2
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