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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.
    2. Michele Leonardo Bianchi & Stoyan V Stoyanov & Gian Luca Tassinari & Frank J Fabozzi & Sergio M Focardi, 2019. "Handbook of Heavy-Tailed Distributions in Asset Management and Risk Management," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 11118, September.
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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. Anne-Caroline Hüser & Christoffer Kok, 2019. "Mapping bank securities across euro area sectors: comparing funding and exposure networks," Bank of England working papers 795, Bank of England.
    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.
    8. Anne-Caroline Hüser & Christoffer Kok, 2019. "Mapping bank securities across euro area sectors: comparing funding and exposure networks," Bank of England working papers 795, Bank of England.
    9. O’Brien, James & Szerszeń, Paweł J., 2017. "An evaluation of bank measures for market risk before, during and after the financial crisis," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 215-234.
    10. Mark Lichtner, 2019. "How to choose the return model for market risk? Getting towards a right magnitude of stressed VaR," Quantitative Finance, Taylor & Francis Journals, vol. 19(8), pages 1391-1407, August.
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    Cited by:

    1. Michele Leonardo Bianchi & Dario Ruzzi & Anatoli Segura, 2024. "Shifting the yield curve for fixed-income and derivatives portfolios," Papers 2412.15986, arXiv.org.

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