Inconsistent FRTB model guidance vexes dealers

Risk models pulled in opposite directions by P&L attribution test and non-modellable risk factors

Opposite directions
The contradictory nature of certain elements of FRTB is leaving banks lost

Conflicting demands contained within the Basel Committee on Banking Supervision’s revised market risk capital framework have left dealers confused over how best to calibrate their internal models.

The regulatory shake-up, known as the Fundamental review of the trading book (FRTB), allows banks to use an internal models approach, or IMA, to calculate a trading desk’s market risk capital requirements – so long as they pass a series of supervisory checks.

One of these checks – the P&L attribution

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