FRTB: proxy risk factors may trigger model failures

Swapping non-modellable risk factors for proxies may make it harder to pass P&L attribution test

stamp-fail

Using proxies for illiquid risk factors in regulatory capital models might prove to be a double-edged sword – potentially shrinking capital charges for market risk while increasing the possibility of model failures, market participants say.

Non-modellable risk factors (NMRFs), which are those not based on a required number and frequency of past price points, will attract whopping capital add-ons under the Basel Committee’s incoming market risk capital framework – the Fundamental Review of the

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: