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Market Consistency and WMC [10]

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Bullet points include: Historically two main ‘books’: Banking book, e.g. loans to individuals or corporates. Loans are typically not actively traded. Typically priced for regulatory capital purposes at amortised cost. Difficult to identify a reliable fair price for such loans. Trading book, e.g. trading derivatives, corporate bonds or other instruments. More marketable, easier to identify a market price. For derivatives, this may involve a model that is designed to bear in mind market observables, i.e. to be ‘market consistent’ (although the term is not used much in the banking sector)

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