Risk backtesting and PnL Explain

Market VaR backtesting

Initial situation

In the context of an ever strengthening requirement for robust risk model, banks are asked to backtest their market VaR at many more levels of their activities and through different tests/PnLs than before.

In order to do so, the market risk application needs to have the various PnLs available and have appropriate functionalities to perform backtesting rapidly and accurately

Tasks (Project)

  • Implement proper workflows between different Finance/PnL platforms and the market risk application
  • Specify adapted functionalities/views to perform backtesting in an industrialized way (almost 100 backtesting performed every day)

Actions

  • Specify risk PnL needs to provider
  • Specify functionalities to risk dev team
  • Implement appropriate controls within risk
  • Integrated various PnLs into the market risk application (Economic PnL, PnL explain produced in Step revaluation, produced on risk sensitivities used by the Front or by the VaR,…)
  • Develop control toolbox for risk operator to manage the entire workflow

Result

  • Fully integrated framework to perform an industrialized backtesting.
  • Functionalities to assess model weaknesses (Taylor approximation, missing risk factor in VaR,…)
  • Quality figures delivered to users