FRTB P&L Attribution Tests and Backtesting
These pages describe the implementation (that is, the cube specification and file formats) of P&L Attribution Tests and Backtesting in the ActiveViam FRTB Accelerator.
Supported Use Cases
The P&L Attribution Tests and Backtesting have been designed to enable the following use cases.
- Monitoring historical VaR and P&L values at the desk and firm-wide 1 levels, as required by regulation.
- Calculating desk and firm-wide VaR values from trade level VaR P&L vectors.
- Customising 2 trade level inputs and analytics to support analysing recent exceptions/outliers.
Definitions 3
Term | Definition |
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T-1 Tthe most recent close of business. This is the AsOfDate in the cube. T-n: close of business for the nth preceding business day. |
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Actual P&L [APL] | As-of T-1, the daily P&L (from T-2 to T-1) of the desk (or firm-wide) based on actual prices 4 and including trading activity 5. |
Hypothetical P&L [HPL] | As-of T-1, the daily P&L value (from T-2 to T-1) of the desk (or firm-wide) based on actual prices for the T-2 portfolio 6. |
Risk-Theoretical P&L [RTPL] | As-of T-1, the daily P&L (from T-2 to T-1) of the desk (or firm-wide) based on model-generated prices for the T-2 portfolio. |
VaR measures | As-of T-1, the model-generated one-day value-at-risk measures for the T-1 portfolio. Note: </br />The as-of T-1 VaR measures are interpreted as a prediction of P&L for COB T. So, when comparing with the P&L values, the VaR measures need to be shifted by one day. |
p-values 7 | As-of T-1, the empirical probability of observing a profit that is less than (or loss greater than) the actual (or hypothetical) P&L 8. |
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All IMA desks (i.e. excluding SA desks), as per the FAQ: BCBS 395 section 2.7 Q1. ↩︎
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This use case relies heavily on custom inputs (for example, asset class) beyond what can be included in the Accelerator. ↩︎
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Based on BCBS 352 paragraph 183 and Appendix B; BCBS 395/437 FAQs; and clarifications in BCBS 436. ↩︎
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From BCBS 352 Appendix B: “the mark-to-market value of the trading desk’s instruments derived from the bank’s pricing models including all risk factors”. ↩︎
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Excluding fees and commissions. ↩︎
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Assuming no trading activity (from T-2 to T-1). ↩︎
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Not required by regulations, but mentioned in BCBS 352 paragraph 182 (b) as something the supervisor may request. ↩︎
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According to the model ↩︎