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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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    7. 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, August.
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