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

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

Register

Want to know what’s included in our free membership? Click here

This address will be used to create your account

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