Advanced Search
MyIDEAS: Login

Model risk and techniques for controlling market parameters. The experience in Banco Popolare

Contents:

Author Info

  • Michele Bonollo

    ()

  • Davide Morandi

    ()

  • Chiara Pederzoli

    ()

  • Costanza Torricelli

    ()

Abstract

The increasing use of internal market models for market risk assessment and management promotes, in compliance with Basel II, better risk management practices but introduces at the same time the so called model risk. In the light of the many open issues connected to market risk, the aim of this paper is twofold. First, it offers a formal analysis of model risk which is aimed to clarify quantification issues and to illustrate the architecture of a control process for this type of risk. An important building block of such an architecture is the so called market parameters control process, which is the focus of the present paper and consists of two different phases: the definition of the data sources and the data retrieval forms, and the definition of the techniques for valuing variables (i.e. input model data) based on market data. Second, this paper proposes a market parameters control process and its implementation within an important Italian bank, namely Gruppo Banco Popolare. Specifically, by focusing on equity market risk, this paper illustrates the whole organization process needed to set up and implement the market parameters control techniques, which imply first controlling for integrity (existence, domain, homogeneity) and outliers and then performing benchmarking activities. Special emphasis is placed on the so-called second level parameters, which do not have official quotes and still are fundamental especially in valuing non linear positions (e.g. volatility). These activities are based on mathematical-statistical models, whose implementation has required the development of specific software and IT solutions and the adoption of an articulate organizational structure.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cefin.unimore.it/sites/default/files/mktpar.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi" in its series Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) with number 07102.

as in new window
Length: pages 50
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:mod:wcefin:07102

Contact details of provider:
Web page: http://www.economia.unimore.it
More information through EDIRC

Related research

Keywords: model risk; market parameters; control process;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mod:wcefin:07102. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Giuseppe Marotta).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.