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Documentation Index

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These pages describe the implementation (that is, the cube specification and file formats) of P&L Attribution Tests and Backtesting in .

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Supported Use Cases

The P&L Attribution Tests and Backtesting have been designed to enable the following use cases.
  1. Monitoring historical VaR and P&L values at the desk and firm-wide 1 levels, as required by regulation.
  2. Calculating desk and firm-wide VaR values from trade level VaR P&L vectors.
  3. Customizing 2 trade level inputs and analytics to support analysing recent exceptions/outliers.

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Definitions 3

TermDefinition
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.
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 measuresAs-of T-1, the model-generated one-day value-at-risk measures for the T-1 portfolio.
Note:
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 7As-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.

Footnotes

  1. All IMA desks (i.e. excluding SA desks), as per the FAQ: BCBS 395 section 2.7 Q1. ↩
  2. This use case relies heavily on custom inputs (for example, asset class) beyond what can be included in the Solution. ↩
  3. Based on BCBS 352 paragraph 183 and Appendix B; BCBS 395/437 FAQs; and clarifications in BCBS 436. ↩
  4. 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”. ↩
  5. Excluding fees and commissions. ↩
  6. Assuming no trading activity (from T-2 to T-1). ↩
  7. Not required by regulations, but mentioned in BCBS 352 paragraph 182 (b) as something the supervisor may request. ↩
  8. According to the model ↩