Infrequent MtM reduces neither value-at-risk nor backtesting exceptions

Frequency of repricing impacts volatility and correlation measures


Eduardo Epperlein and Jean Herskovits assess the effects of infrequent mark-to-market updates on value-at-risk calibration and on the portfolio against which the VAR is backtested. They then relate their observations to the non-modellable risk factor framework adopted by the Fundamental Review of the Trading Book

The Basel Fundamental Review of the Trading Book (FRTB) introduced new capital charges for assets whose trades are not observed frequently enough (BCBS 2019)

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