FRM Part II · FRM Exam Part II · Fundamental Review of the Trading Book
In FRTB, hypothetical P&L used in backtesting differs from actual P&L in which respect?
Hypothetical P&L revalues the previous end-of-day portfolio under the next day's market moves, holding positions constant and excluding fees, commissions, and intraday trading effects. Actual P&L, by contrast, includes those items, so the two give different views in backtesting.
- AIt includes fees, commissions and reserves
- BIt includes intraday trading profits and losses
- CIt holds the end-of-previous-day portfolio positions constant and excludes fees, commissions and intraday trading effectsCorrect
- DIt is computed only for the non-modellable risk factors
Explanation
Hypothetical P&L revalues the previous day's closing positions using the next day's market moves, excluding fees, commissions, and intraday trading. Actual P&L includes those items, which is why option 0 describes actual P&L rather than hypothetical.
Did you get it right without looking?
One question tells you little. A timed set on Fundamental Review of the Trading Book shows your real accuracy, how long you take and where you lose marks.
More Fundamental Review of the Trading Book questions
- Under the FRTB internal models approach, which risk measure replaced 99% Value-at-Risk as the basis for calculating trading book market risk…
- Under Basel 2.5, which pair of additional capital charges was introduced to supplement the 10-day 99% VaR charge for the trading book?
- A bank's internal model computes expected shortfall using liquidity horizons that differ by risk factor category. Under FRTB, what is the pu…
- Before FRTB, a trading desk held a securitization position that was moved from the trading book to the banking book during the crisis once l…
- Which statement best describes how risk weights are applied in the FRTB SBM delta charge?
- A bank's FX desk has two net delta sensitivities within the same risk-class bucket, after risk weighting: WS1 = 60 and WS2 = 80 (USD million…