Banca Commerciale Italiana (BCI) recently received approval from the Bank of Italy for the use of internal market risk models using a variety of Value-at-Risk (VaR) methods, including parametric methods and Monte Carlo simulations for non-linear portfolios. The models are built with Algo Suite(TM) at their core and provide actionable risk information to many business areas of the bank. The approval marks the first time that an Italian bank had an internal model validated for use by the central bank. As a consequence of the recent merger of BCI with Banca Intesa, the approved model will be extended to estimate regulatory and economic risk capital for the combined operations of the new IntesaBci bank. The models approved cover market and equity-specific risk, and will cover credit risk when the use of internal models for calculating spread and event risk are approved by the Bank of Italy, expected within a year.’ The bank is also well on its way to being able to model all of its credit derivatives’ activity, which is important given IntesaBci’s status as a globally-recognized player in the credit derivatives arena. Current internal procedures help the bank know its exposures for a large segment of the firm’s credit derivatives portfolio in VaR terms.
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