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Practice paper

Control without limits: Why the ‘Fundamental Review of Trading Books’ is a good step forward and how it could go further

Cyril Godart
Journal of Risk Management in Financial Institutions, 8 (3), 297-307 (2015)
https://doi.org/10.69554/VMGX1999

Abstract

Setting up a coherent and thorough market risk framework for trading books is a complex task. So far, regulatory texts have been constraining such frameworks but have been of little help in their genesis. The ‘Fundamental Review of Trading Books’ largely corrects this situation. Drawing from experience, the author highlights some important points that should be included in a coherent risk framework and shows how the ‘Fundamental Review of Trading Books’ addresses these precise points. The author discusses in particular liquidity and hedging treatments, two concepts extensively discussed in the ‘Fundamental Review of Trading Books’. He then shows how the logic of systematic desk reporting can be extended to go beyond local supervisory and can be leveraged to address global issues in the financial system.

Keywords: market risk; Basel; liquidity risk; hedging strategy; derivatives; RORAC; risk framework

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Author's Biography

Cyril Godart is a senior consultant at QuBits Research Ltd. He has been working in finance and has held positions as a quantitative analyst, trader and risk manager for large investment banks in the UK, USA and Asia. Dr Godart has experience in fixed income, equity and commodity derivatives products and a personal interest in automatic trading and quantitative trading strategies.

Citation

Godart, Cyril (2015, July 1). Control without limits: Why the ‘Fundamental Review of Trading Books’ is a good step forward and how it could go further. In the Journal of Risk Management in Financial Institutions, Volume 8, Issue 3. https://doi.org/10.69554/VMGX1999.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 8 / Issue 3
© Henry Stewart
Publications LLP

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