Backtesting
Goldman’s market RWAs grew $14.9 billion in Q1
The increase was largely due to higher VAR and SVAR measures
Fake data can help backtesters, up to a point
Synthetic data made with machine learning will struggle to capture the caprice of financial markets
In fake data, quants see a fix for backtesting
Traditionally quants have learnt to pick data apart. Soon they might spend more time making it up
ECB’s Trim found 900 flaws with 31 banks’ market risk models
Remedying shortcomings added €11 billion to market RWAs in aggregate
Margin breaches quadrupled at Eurex in 2020
Equity derivatives service witnessed 1,782 breaches last year alone
The volatility paradigm that’s stirring up options pricing
‘Rough volatility’ models promise better pricing and hedging of options. But will they catch on?
Can CCPs zone in on improved margin buffers?
Dynamically adjusting margin add-ons could reduce cyclical funding demands
Data quality in focus as UMR deadlines stretch
The uncleared margin rules are seen by many as key to accurate and fast margin calculations. IHS Markit explores how firms can quickly assess proposed trades, calculate initial margin accurately and effectively handle the margin exchange workflow to…
Isda study reveals size of Covid’s trading book capital hike
Procyclicality led to aggregate 25% rise in market, CVA risk-weighted assets
The impact of data aggregation and risk attributes on stress testing models of mortgage default
In this paper, the authors investigate how data aggregation and risk attributes affect the development and performance of stress testing models by studying residential mortgage loan defaults.
Broken backtests leave quant researchers at a loss
As historical data loses relevance, quants must find new ways to validate their theories
Study suggests banks may be better off with simpler VAR models
Non-parametric VAR models perform well in calm markets, but miss the mark in volatile periods
Initial margin models of top CCPs slipped in Q1
Achieved coverage levels declined quarter-on-quarter
Margin breaches exceed €500m at Eurex in Q1
Eurex disclosed 3,180 margin shortfalls over twelve months to end-March
Consumer credit modelling software of the year – SAS
Risk Technology Awards 2020
EU urged to pass permanent market risk capital relief
Council agrees temporary changes, but ECB’s Enria wants legislators to trust supervisors
EU Parliament ‘likely’ to allow market risk capital relief
MEPs propose allowing supervisors to temporarily exclude Covid-related backtesting exceptions
Rewards for failure: the ECB’s topsy-turvy market risk relief
Eurozone banks with better models are least able to offset Covid-driven rise in backtesting multiplier
EBA relaxes modellability hurdles for market risk capital
Flexibility granted for assessing NMRFs on options, but constraints remain on committed quotes
FRTB comes too late for Covid crisis
Expected shortfall would stop Basel 2.5 duplicate capital charges, but backtesting still a problem
Eurozone banks fear market risk capital hike due to Covid-19
Hopes that ECB will fix double-counting as VAR breaches rise on market volatility
Fuzzy data stalls ESG alpha hunt
Quants searching for ESG signals have reached very different conclusions. Mostly they blame the data
Initial margin – A regulatory bottleneck
With the recent announcement of an extended preparation period for those smaller entities needing to post initial margin under the uncleared margin rules, the new timetable could cause a bottleneck for firms busy repapering derivatives contracts linked…
Final Volcker rule spurs rethink on FRTB trading desks
Regulators encourage structural alignment between the two rules, but hurdles remain