P&L test in FRTB may not work – research
Delays in approval and small data sets may doom internal model approach
Mathematical studies have cast further doubt on the profit and loss (P&L) attribution test included in the Fundamental review of the trading book (FRTB), with the authors doubtful that the test can ever be made to work as intended.
Peter Thompson and Hayden Luo of ANZ Bank and Kevin Fergusson of the University of Melbourne argue that banks should expect to have a significant number of desks awaiting re-accreditation after failing the test at any one time – meaning that the test will be too
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