Please use this identifier to cite or link to this item: http://hdl.handle.net/10316/89360
Title: Asset classification under the IFRS 9 framework for the construction of a banking investment portfolio
Authors: Brito, Rui Pedro 
Júdice, Pedro Maria Corte-Real Alarcão 
Keywords: Asset Classification, Backtesting, IFRS 9, Derivative-Free Optimization, Sensitivity Analysis, Stochastic Simulation
Issue Date: 29-Apr-2020
Series/Report no.: CeBER Working Paper 2020-06;CeBER Working Paper 2020-06
Abstract: In this paper we perform a quantitative analysis, under the IFRS 9 framework, on the tradeoff of classifying a financial asset at amortized cost versus at fair value. We define and implement a banking impairment model in order to quantify the forward-looking expected credit loss. Based on the suggested impairment model we conduct a backtest on the 10-year Portuguese Government bonds, for the time period from January 2003 to December 2019. The Portuguese bonds’ history constitutes a very rich data set for our experiment, as these bonds have experienced significant downgrades during the 2011-2014 financial crisis. We suggest a quantitative and systematic approach in order to find efficient allocations, in an income/downside comprehensive income bi-dimensional space. Resorting to stochastic simulation, we show a possible approach to mitigate the estimation error ingrained in the proposed bi-objective stochastic model. Finally, we assess the out-of-sample performance of some of the suggested efficient allocations.
URI: http://hdl.handle.net/10316/89360
Rights: openAccess
Appears in Collections:I&D CeBER - Working Papers

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