Singular spectrum analysis for modelling the hard-to-model risk factors

Andrés Berenguer (), Luis Gandarias and Álvaro Arévalo
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Andrés Berenguer: Market Risk, CIB, Santander Bank
Luis Gandarias: Market Risk, CIB, Santander Bank
Álvaro Arévalo: Market Risk, CIB, Santander Bank

Risk Management, 2020, vol. 22, issue 3, No 2, 178-191

Abstract: Abstract The modelling of the hard-to-model risks factors is one of the topics of great interest to the financial industry. The industry is spending lots of resources on efforts to account for the hard-to-model risks in their risk management frameworks. Currently, the concept describing these risks is the Risk Not in VaR. In its turn, the newly composed Fundamental Review of the Trading Book text similarly prescribes to classify risk factors that do not have a history of continuously available real prices as non-modellable risk factors. Both entities and financial regulatory authorities have shown great concern in the search for efficient techniques and models that allow for a more accurate estimation of the risks factors linked to the derivatives. An accurate modelling of these risk factors can lead to considerable optimization in the capital charges, but any model assumption must be duly justified and supported by the entities. In this paper, the (Multichannel) Singular Spectrum Analysis for modelling these risk factors is analysed.

Keywords: Banking; Capital; FRTB; Matrix decomposition; Risk; RNIV; Singular spectrum analysis; Time series; VaR (search for similar items in EconPapers)
JEL-codes: C14 C21 C22 C23 C31 C32 C33 C38 C53 C58 C60 C63 C65 G11 G17 G18 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1057/s41283-020-00060-5

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