The white elephant of the trading book review

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There are some good things in the Fundamental review of the trading book – the Basel Committee on Banking Supervision’s plans for an overhaul of the market risk capital regime.1 Unfortunately, the document also contains at least one horribly impractical white elephant.

On the plus side, the review highlights the inadequacy of estimates of short-term volatility rooted exclusively in a rolling sample of the latest market data. It has been long recognised that such estimates create pro-cyclical

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