Backtesting
Model teams fear budget cuts as FRTB wipeout looms
Senior modellers think supervisory intervention is needed to prevent funding drought
Citi, JP Morgan incurred record VAR overshoots in Q4
Peak single-day losses rank among worst for US banks post-pandemic
Rabobank cuts back on ECL overlays
Improved backtesting performance reduces add-ons to allowances to lowest in five years
FRTB could put Indian banks at competitive disadvantage
Simplified approach could leave local banks with higher capital charges than foreign branches
NSCC had top margin breach of $1.2bn in Q3
Margin shortfall is largest on record for the CCP and bucks wider trend across global clearing houses
EBA seeks to tighten up uneven prudent value adjustments
Regulator to consult ‘soon’ on changes to improve consistency of capital deductions
Assessing the potential profitability of automated power market trading using event signals sourced from grid frequency data
The authors put forward a profitable trading strategy based on power grid events, demonstrating that minimized reaction times can increase profits.
VAR breaches trip up Citi, CS USA and two others in Q3
Comerica’s VAR multiplier ratchets up while Huntington’s remains at record high
Party’s over as more banks drop internal models for market risk
At least three systemic banks in Europe intend to ditch IMA for capital requirements
AgBank’s regulatory VAR hits record high in first half
Chinese bank’s market risk up by over a third to highest level in a decade
US-regulated IHCs retrench from VAR limits
Largest daily trading losses in Q2 were on average 50% of forecast, down from 102% in Q1
Comerica’s VAR multiplier spikes following eight breaches in Q2
Worst one-day trading loss at Dallas-based company was six times as large as its forecast
StanChart racked up three VAR breaches in H1
Market volatility triggers VAR model review at the UK bank
Using a skewed exponential power mixture for value-at-risk and conditional value-at-risk forecasts to comply with market risk regulation
The authors investigate a method that combines two skewed exponential power distributions and models the conditional forecasting of VaR and CVaR and is in compliance with the recent Basel framework for market risk.
EU banks balk at new market risk models back test
EBA proposals introduce additional expected shortfall back test for market capital risk models under FRTB
Bayesian backtesting for counterparty risk models
Utilising Bayesian methods, the authors put forward a new means for counterparty risk model backtesting which is both simple to implement and conceptually sound.
US arms of Credit Suisse, SMBC stumble on VAR
Breaches of trading forecasts in Q1 result in higher value-at-risk multipliers for the duo
What can we expect from a good margin model? Observations from whole-distribution tests of risk-based initial margin models
This paper offers a means of testing initial margin models based on their predictions of the whole future distribution of returns of the relevant portfolio which is demonstrated to be more powerful than typical backtesting approaches.
US falls behind in race to match Europe’s FRTB launch date
Recent US bank failures could jeopardise planned January 2025 start date for Basel III
Soft inflation print triggers initial margin breaches at FICC
Clearing units for MBSs and government securities hit by backtesting deficiencies as coverage levels dip
Estimating risks of European option books using neural stochastic differential equation market models
The authors investigate how arbitrage-free neural stochastic differential equation market models can produce realistic scenarios for the joint dynamics of multiple European options on a single underlying and demonstrate how they can be used as a risk…