Model risk
New BoE climate risk scenarios spark race for extra data
Banks need information from clients or third parties to populate 1,760 stress test variables
Podcast: Claudio Albanese on how bad models survive
Darwin’s theory of natural selection could help quants detect flawed models and strategies
A Darwinian theory of model risk
An ex ante methodology is proposed to analyse the model risk pattern for a broad class of structures
Banks fear Fed crackdown on AI models
Dealers say agencies’ request for info could prompt new rules that stifle model innovation
Quantum computing experts voice explainability fears
Risk Live: big speed-ups for quantum-powered models could prompt bigger questions from regulators
US unit of BBVA on the brink of a VAR breach in Q1
Largest loss-to-VAR ratio at the firm was highest among the 12 intermediate holding companies
From one extreme to another: Covid upsets loan models once more
Unusual economic slumps tripped up models in 2020. Now, they are struggling with fast recoveries
Morgan Stanley, Bank of America push VAR limits the most
Largest losses-to-VAR ratios at the two firms were the highest among the eight systemic US banks in Q1
US watchdogs seek to govern bank AML systems as models
Banks fear prudential agencies’ move could hamper their own ability to fight financial crime
Model reviews imposed capital charges on top EU banks in Q4
Societe Generale incurred a -36bp hit to its CET1 ratio due to Trim
Statistical properties of the population stability index
This paper aims to fill a gap in the literature by providing statistical properties of the population stability index (PSI) and some recommendations on its use.
Parallel lines: EU begins fight over Basel output floor
Leaked plan to exclude buffers from floor would please EU banks, could anger Basel and US
Fed will start FRTB model approvals for US banks in 2021
Senior official says banks should now be deciding desk structure and readying backtests
Quants tout alternative carry trades for the ‘new normal’
Low rates and flatlining yield curves leave investors seeking carry in swaps and swaptions
Level 3 assets fell at top US banks in Q2
Mark-to-model instruments disclosed by banks over $100 billion in size contracted 4%
Hypothetical yield curve scenarios for credit stress testing
In this paper, we discuss a set of hypothetical yield curve shift scenarios generated by applying extreme value distributions and a shaping procedure. These statistically derived hypothetical stress scenarios could be susceptible to model risk, leading…
Fix to Fed stress test snafu lowers two banks’ capital charges
Goldman, Morgan Stanley see stress capital buffer cuts
A k-means++-improved radial basis function neural network model for corporate financial crisis early warning: an empirical model validation for Chinese listed companies
This paper aims to simplify the early warning model for financial crises by collecting and analyzing the financial data of Chinese special treatment (ST) companies, normally listed companies and cancel special treatment (CST) companies.
Big buy-side firms seek better model risk disclosures
Working group building standardised disclosure doc for managers and vendors
Top banks defer €1.6bn of profits on hard-to-value trades in H1
BNP Paribas set aside €532 million alone in H1
Benchmarking operational risk stress testing models
This paper outlines several approaches to benchmarking operational loss projections under stressed scenarios using both accounting metrics and historical loss experience.
Why investors are stuck with flawed VAR models
Buy-side risk survey: VAR wasn’t much use in March, but it is ingrained in the industry
Valuation risks fell at UBS in Q2
Swiss lender is sitting on $8.1 billion of Level 3 assets
Mark-to-model assets spiked at eurozone banks in Q1
Level 3 derivatives assets increased 52% quarter-on-quarter