Backtesting
Using a skewed exponential power mixture for value-at-risk and conditional value-at-risk forecasts to comply with market risk regulation
The authors investigate a method that combines two skewed exponential power distributions and models the conditional forecasting of VaR and CVaR and is in compliance with the recent Basel framework for market risk.
EU banks balk at new market risk models back test
EBA proposals introduce additional expected shortfall back test for market capital risk models under FRTB
Bayesian backtesting for counterparty risk models
Utilising Bayesian methods, the authors put forward a new means for counterparty risk model backtesting which is both simple to implement and conceptually sound.
US arms of Credit Suisse, SMBC stumble on VAR
Breaches of trading forecasts in Q1 result in higher value-at-risk multipliers for the duo
What can we expect from a good margin model? Observations from whole-distribution tests of risk-based initial margin models
This paper offers a means of testing initial margin models based on their predictions of the whole future distribution of returns of the relevant portfolio which is demonstrated to be more powerful than typical backtesting approaches.
US falls behind in race to match Europe’s FRTB launch date
Recent US bank failures could jeopardise planned January 2025 start date for Basel III
Soft inflation print triggers initial margin breaches at FICC
Clearing units for MBSs and government securities hit by backtesting deficiencies as coverage levels dip
Estimating risks of European option books using neural stochastic differential equation market models
The authors investigate how arbitrage-free neural stochastic differential equation market models can produce realistic scenarios for the joint dynamics of multiple European options on a single underlying and demonstrate how they can be used as a risk…
US banks’ VAR breaches up 2.5x in 2022
‘Hypothetical’ one-day losses exceeded VAR on 55 occasions, as losing trading days prevail
Value-at-risk and the global financial crisis
The authors investigate the forecasting ability of bank VaR estimates around the 2007-9 financial crisis using daily data from seven international banks, finding systemic overstating of VaR either side of the financial crisis and mixed performance during…
US banks’ loss-to-VAR ratios fell in Q3
Largest daily trading losses were on average 84% of forecast, compared with 105% in Q2
LCH’s fixed income and IRS units hit by record margin breaches
Peak breaches in Q3 were £924 million and £698 million in size, respectively
Fed hike behind $682m and $460m breaches at FICC
Clearing units for MBS and government securities hit by backtesting deficiencies on September 21
Semiparametric GARCH models with long memory applied to value-at-risk and expected shortfall
The authors introduce and apply new semiparametric GARCH models with long memory to obtain rolling one-step ahead forecasts for the value-at-risk and expected shortfall (ES) for market risk assets.
As interest rates surge, bankers fret over last year’s models
IRRBB modellers trying to predict client behaviour have little relevant data to fall back on
Market risk capital relief could cut charges at 13 EU banks
EBA says Covid-style measures could be considered to tackle energy crisis
$899m margin breach at FICC’s mortgage unit
Three-day move in TBA prices on June 9 triggered second-highest backtesting deficiency to date
FICC’s government securities unit hit by $995m breach
Large moves in US Treasury yields in June to blame for largest backtesting exception on record
Interest rate vol triggered three breaches at CME in Q2
CCP’s interest rate swaps clearing unit reported its first initial margin shortfalls since Q3 2020
JSCC’s bond and IRS units hit by almost 200 breaches
Q2 volatility triggered some of the largest initial margin breaches ever reported by the CCP
JP Morgan’s VAR multiplier increases following Q2 breach
Citi also reported one backtesting exception but kept VAR-based market risk capital requirement flat
Commerz’s VAR multiplier ratchets up after H1 breaches
Bank dodged increase in market RWAs by rebalancing to a lower-risk trading portfolio
PRA’s pot shots threaten Simm’s global ubiquity
UK regulator’s push to improve model governance could tip non-cleared derivatives market into chaos
Eurex’s fixed income and IRS units hit by almost 700 breaches
Peak breaches in Q1 were €706 million and €214 million in size, respectively