Objective

To model the impact of input projections provided by the EBA on bank-specific Interest Rate risk factors for a U.K. investment bank.

CRISIL's Solution

• Measured 14 different types of IR risk factors, including Swap, Treasury, Repo, OIS, Money Market, Swaption Vols and others
• Employed PCA to elicit the key driver variables with a high degree of correlation, such as term structure of interest rates, implied vols, etc.
   

Client Impact

• CRISIL's models enhanced the Investment Bank's out-of-sample performance in propagating EBA shocks  compared to the  benchmark models (panel regression)
  
• Reduced need for data collection (for factor proxies) and overhead calculation related to panel regression
  
• Modelling time reduced from hours to a few minutes
  

Questions

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