Technical paper/FRTB
Exceedance-based backtesting of expected shortfall
The authors apply exceedance-based validation techniques often used for VaR model validation the the validation of ES models, showing such an application to be feasible.
The Fundamental Review of the Trading Book and fat tails
Conservative capital buffers may not be enough to protect against tail events
A review of the foreign exchange base currency approach under the standardized approach of the Fundamental Review of the Trading Book and issues related to the pegged reporting currency
When we adopt the parameters in the BCBS standards to calculate the delta risk charge, anomalies in the risk charges for the same risk exposure are found under different approaches and under different reporting currencies. The anomalies increase when the…
Differential machine learning: the shape of things to come
A derivative pricing approximation method using neural networks and AAD speeds up calculations
An internal default risk model: simulation of default times and recovery rates within the new Fundamental Review of the Trading Book framework
This paper presents a new default risk model for market risk that is consistent with these requirements. The recovery rates follow a waterfall model that is based on a minimum entropy principle.
Levelling the playing field of the FRTB’s forex rules
Hany Farag argues that changing the base currency may address FRTB forex asymmetry
The minimally biased backtest for ES
Acerbi and Szekely present a backtest for expected shortfall
Capital allocation under the Fundamental Review of the Trading Book
Quants propose an allocation method for internal model capital charges
The implicit constraints of Fundamental Review of the Trading Book profit-and-loss-attribution testing and a possible alternative framework
This paper presents the constraints embedded in the the profit-and-loss-attribution test and explores a possible alternative framework.
The revised P&L attribution test and the suitability of new proposed thresholds
Montoro, Spinaci and Georgi assess the effectiveness of the FRTB’s P&L attribution test
A review of the fundamentals of the Fundamental Review of the Trading Book II: asymmetries, anomalies, and simple remedies
This paper highlights some anomalies and asymmetries in the new market risk paradigm of the Fundamental Review of the Trading Book (FRTB) framework.
Model risk in the Fundamental Review of the Trading Book: the case of the Default Risk Charge
This paper assesses the model risk associated with the copula choice for the calculation of the Default Risk Charge (DRC) measure.
Validation of profit and loss attribution models for equity derivatives
The aim of this paper is to validate profit and loss attribution generated by daily movements of option prices as seen through their Black–Scholes (Black and Scholes 1973) and Merton (1973) implied volatilities.
The profit-and-loss attribution test
In this paper, the authors analyze the failure probabilities of the profit-and-loss attribution (PLA) test as defined in the final market risk standard published in January 2016 by the Basel Committee on Banking Supervision.
The FRTB’s P&L attribution-based eligibility test: an alternative proposal
Spinaci, Benigno, Fraquelli and Montoro propose two alternatives to the P&L attribution test
Default risk charge: modeling framework for the “Basel” risk measure
This paper presents a comprehensive model framework for DRC that is compliant with the revised Basel regulatory framework.
A review of the fundamentals of the Fundamental Review of the Trading Book: standard foreign exchange rules are highly asymmetric with respect to reporting currencies
This paper develops a framework to fully characterize the invariance of the Delta capital charge for the FX book under a change in reporting currency.
Identification and capitalisation of non-modellable risk factors
Adolfo Montoro, Tim Becker and Lars Popken propose techniques for systematically capturing and categorising non-modellable risk factors and risk-adequate aggregation
Expected shortfall and VAR: cracking the marginal allocations
A new method to estimate marginal VAR and marginal ES is presented
Capital and funding
Quants propose KVA and FVA accounting framework based on Solvency II regulation
Risk 25: Cutting edge classics
Don’t say we didn’t warn you