Finance:P&L attribution
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Revision as of 08:55, 3 December 2020 by imported>John Marlo (add)
Profit and loss (P&L) attribution is a backtesting method for assessing the robustness of banks’ risk management models by comparing the hypothetical P&L[clarification needed] predicted by risk management models with the actual P&L.[1]
The "Hypothetical P&L" is the P&L produced by revaluing the positions held at the end of the previous day using the market data at the end of the current day
Requirements
Requirements are based on two metrics:
- The mean of the difference between the theoretical and actual P&L (i.e. unexplained P&L) divided by the standard deviation of the actual P&L; and
- The variance of the unexplained P&L divided by the variance of the actual P&L.
Banks are required to estimate and report these ratios for each trading desk on a monthly basis.
Example
market values at
- day1: A=100, B=200 and we hold 50 of A and 100 of B - value 5000 and 20000
- day2: A=150, B=250 and we hold 100 of A and 200 of B
- day3: A=125, B=300
HPL day 2
- A PnL: (50 x 150 = 7500) - 5000 = 2500
- B PnL: (100 x 250 = 25000) - 20000 = 5000
- HPL = 7500
/not sure about above, need to check/
Notes
- ↑ Basel Committee on Banking Supervision (January 2016). "Minimum Capital Requirements for Market Risk" (PDF). Bank for International Settlements. pp. 71, 87. http://www.bis.org/bcbs/publ/d352.pdf. Retrieved 21 June 2017.
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