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Assessing and forecasting the market risk of bank securities holdings: a data-driven approach

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  • Michele Leonardo Bianchi

    (Financial Stability Directorate, Banca d’Italia)

Abstract

We use granular information on securities holdings from 2008 to 2021 to estimate the market risk of Italian bank securities portfolios. The market risk is measured by the value-at-risk and the expected shortfall. The main advantages of our approach are the following: (1) profits and losses are computed through simple operations and without the need of complex calibration algorithms; (2) we are able to incorporate all market data available in Refinitiv; and (3) the risk measures can be estimated for all banks located in Italy, irrespective if the bank has validated internal models for market risk or not. Finally, we conduct an econometric analysis to identify the main drivers of market risk and to perform a forecasting exercise.

Suggested Citation

  • Michele Leonardo Bianchi, 2023. "Assessing and forecasting the market risk of bank securities holdings: a data-driven approach," Risk Management, Palgrave Macmillan, vol. 25(4), pages 1-23, December.
    • Handle: RePEc:pal:risman:v:25:y:2023:i:4:d:10.1057_s41283-023-00131-3
    DOI: 10.1057/s41283-023-00131-3
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    References listed on IDEAS

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    1. Pérignon, Christophe & Deng, Zi Yin & Wang, Zhi Jun, 2008. "Do banks overstate their Value-at-Risk?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 783-794, May.
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    4. Pritsker, Matthew, 2006. "The hidden dangers of historical simulation," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 561-582, February.
    5. Michele Leonardo Bianchi & Gian Luca Tassinari, 2020. "Forward-looking portfolio selection with multivariate non-Gaussian models," Quantitative Finance, Taylor & Francis Journals, vol. 20(10), pages 1645-1661, October.
    6. Hüser, Anne-Caroline & Kok, Christoffer, 2019. "Mapping bank securities across euro area sectors: comparing funding and exposure networks," Working Paper Series 2273, European Central Bank.
    7. Justus Inhoffen & Iman van Lelyveld, 2020. "Financial Stability: New, Detailed Datasets Allow for Innovation of Stress Tests," DIW Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 10(3), pages 17-25.
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