  The profit and loss (p&l) attrition for each business year into different
risk or risk factors (e.g., interest rates, credit spreads, foreign exchange
rate etc.) is a regulatory requirement, e.g., under Solvency 2. Three different
decomposition principles are prevalent: one-at-a-time (OAT), sequential
updating (SU) and average sequential updating (ASU) decompositions. In this
research, using financial market data from 2003 to 2022, we demonstrate that
the OAT decomposition can generate significant unexplained p&l and that the SU
decompositions depends significantly on the order or labeling of the risk
factors. On the basis of an investment in a foreign stock, we further explain
that the SU decomposition is not able to identify all relevant risk factors.
This potentially effects the hedging strategy of the portfolio manager. In
conclusion, we suggest to use the ASU decomposition in practice.
