The P&amp;L Attribution Test

Thompson, Peter; Luo, Hayden; Fergusson, Kevin

doi:10.2139/ssrn.2897911

SSRN Journal

2016

DOI: 10.2139/ssrn.2897911

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The P&L Attribution Test

Peter Thompson

Hayden Luo

Kevin Fergusson

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2023

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“…One of the first FRTB studies is that of Thompson, Luo, and Fergusson (2016, 2017) who examine the theoretical failure rate of the PLA tests (based on the January 2016 specification). Subsequently, Farag (2017) argues that alignment between front office pricing models and middle office risk models will be key to passing the PLA tests.…”

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The Fundamental Review of the Trading Book: Implications for Portfolio and Risk Management in the Banking Sector

McCullagh¹,

Killian²

2023

J of Money Credit Banking

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The Fundamental Review of the Trading Book (FRTB) is the promised overhaul of bankmarket risk regulation. FRTB retains the authorized use of proprietary risk models, however, it introduces two additional criteria: (i) P&L attribution (PLA) tests and (ii) desk‐level backtests. We examine empirically whether these additional criteria influence risk management and portfolio management practice, specifically portfolio construction and choice of risk model. We find that the PLA tests demand significant alignment with risk factors, however, the backtests do not incentivize use of superior risk models. This has important implications for the efficacy of the capital‐based regulatory system.

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mentioning

confidence: 99%

The Fundamental Review of the Trading Book: Implications for Portfolio and Risk Management in the Banking Sector

McCullagh¹,

Killian²

2023

J of Money Credit Banking

View full text Add to dashboard Cite

show abstract

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The P&L Attribution Test

Cited by 1 publication

References 1 publication

The Fundamental Review of the Trading Book: Implications for Portfolio and Risk Management in the Banking Sector

The Fundamental Review of the Trading Book: Implications for Portfolio and Risk Management in the Banking Sector

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