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Asset classification under the IFRS 9 framework for the construction of a banking investment portfolio


  • Rui Pedro Brito

    (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra)

  • Pedro Maria Corte Real Alarcão Judice

    (ISCTE Business Research Unit)


In this paper we perform a quantitative analysis, under the IFRS 9 framework, on the tradeoff of classifying a financial asset at amortized cost versus at fair value. We define and implement a banking impairment model in order to quantify the forward-looking expected credit loss. Based on the suggested impairment model we conduct a backtest on the 10-year Portuguese Government bonds, for the time period from January 2003 to December 2019. The Portuguese bonds’ history constitutes a very rich data set for our experiment, as these bonds have experienced significant downgrades during the 2011-2014 financial crisis. We suggest a quantitative and systematic approach in order to find efficient allocations, in an income/downside comprehensive income bi-dimensional space. Resorting to stochastic simulation, we show a possible approach to mitigate the estimation error ingrained in the proposed bi-objective stochastic model. Finally, we assess the out-of-sample performance of some of the suggested efficient allocations.

Suggested Citation

  • Rui Pedro Brito & Pedro Maria Corte Real Alarcão Judice, 2020. "Asset classification under the IFRS 9 framework for the construction of a banking investment portfolio," CeBER Working Papers 2020-06, Centre for Business and Economics Research (CeBER), University of Coimbra.
  • Handle: RePEc:gmf:papers:2020-06

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    More about this item


    Asset Classification; Backtesting; IFRS 9; Derivative-Free Optimization; Sensitivity Analysis; Stochastic Simulation.;

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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