Technical paper/Market risk
The impact of the Fundamental Review of the Trading Book: evaluation on a stylized portfolio
The authors investigate banks' market risk capital requirements under the internal models approach through the lens of the Basel Fundamental Review of the Trading Book, using data from the period 2007-19.
Value-at-risk and the global financial crisis
The authors investigate the forecasting ability of bank VaR estimates around the 2007-9 financial crisis using daily data from seven international banks, finding systemic overstating of VaR either side of the financial crisis and mixed performance during…
Collateralised exposure modelling: bridging the gap risk
Concentration, leverage and correlations may affect a collateralised equity swap portfolio
The Fundamental Review of the Trading Book and fat tails
Conservative capital buffers may not be enough to protect against tail events
A review of the foreign exchange base currency approach under the standardized approach of the Fundamental Review of the Trading Book and issues related to the pegged reporting currency
When we adopt the parameters in the BCBS standards to calculate the delta risk charge, anomalies in the risk charges for the same risk exposure are found under different approaches and under different reporting currencies. The anomalies increase when the…
A Libor market model including credit risk under the real-world measure
The authors present a methodology to generate future scenarios of interest rates for different credit ratings under a real-world probability measure.
Art-secured lending: a risk analysis framework
In this study, the authors identify the three types of risks involved in an art-secured lending operation and present a framework to assess their combined effects via a Monte Carlo simulation.
An internal default risk model: simulation of default times and recovery rates within the new Fundamental Review of the Trading Book framework
This paper presents a new default risk model for market risk that is consistent with these requirements. The recovery rates follow a waterfall model that is based on a minimum entropy principle.
Credit valuation adjustment wrong-way risk in a Gaussian copula model
In this paper, we present an analytical expression for CVA with WWR under the assumption of the lognormally distributed trade value.
The minimally biased backtest for ES
Acerbi and Szekely present a backtest for expected shortfall
The implicit constraints of Fundamental Review of the Trading Book profit-and-loss-attribution testing and a possible alternative framework
This paper presents the constraints embedded in the the profit-and-loss-attribution test and explores a possible alternative framework.
A review of the fundamentals of the Fundamental Review of the Trading Book II: asymmetries, anomalies, and simple remedies
This paper highlights some anomalies and asymmetries in the new market risk paradigm of the Fundamental Review of the Trading Book (FRTB) framework.
Multifactor granularity adjustments for market and counterparty risks
In this paper, the authors propose several flexible families of models to manage the market and/or the counterparty risk of portfolios of financial assets.
Chaotic behavior in financial market volatility
In this paper, the authors present a robust method for the detection of chaos based on the Lyapunov exponent, which is consistent even for noisy and finite scalar time series.
Shrunk volatility value-at-risk: an application on US balanced portfolios
In this paper, the authors adopt a new method of predicting VaR, to estimate balanced portfolios’ VaR.
Model risk in the Fundamental Review of the Trading Book: the case of the Default Risk Charge
This paper assesses the model risk associated with the copula choice for the calculation of the Default Risk Charge (DRC) measure.
Estimation risk for value-at-risk and expected shortfall
This paper provides a detailed analysis of the relationship between approximate VaR (ES) and exact VaR (ES) by finding a linear regression model in which the response variable is the approximate VaR (ES) and the explanatory variable is the exact VaR (ES)…
New historical bootstrap value-at-risk model
This paper presents a new value-at-risk (VaR) model for the estimation of market risk in banks and other financial institutions.
Default risk charge: modeling framework for the “Basel” risk measure
This paper presents a comprehensive model framework for DRC that is compliant with the revised Basel regulatory framework.
Comparing risk measures when aggregating market risk and credit risk using different copulas
The authors of this paper simulate realistic total bank return distributions by means of a top-down copula approach for different parameter settings.
Testing value-at-risk models in emerging markets during crises: a case study on South Eastern European countries
This paper examines the applicability of a wide range of VaR models in emerging markets, focusing on South Eastern European countries.