Study on Management of Non-Modelable Risk Factors (NMRF) via machine learning

The fundamental review of the trading book (FRTB) drawn up by the Basel Committee (Basel Committee on Banking Supervision) imposes a series of requirements which will come into force in January 2022. One of the main innovations defined by FRTB concerns the introduction of the concept of non-modellable risk factors (NMRF), which requires the holding of additional capital. Financial institutions seek to reduce this capital in order to increase their profitability.

This article aims to present a method to manage using machine learning Non Modelisable Risk Factors and to compare the results obtained with the market method.