Microservices: FRTB Modellable Risk Factors

FRTB regulations specify that non-modellable risk factors are subject to stressed capital add-ons For a risk factor to be modellable it must pass a specific test for continuously available real prices The Clarus API provides functions for the risk factor modellability test for OTC Derivatives These functions are very easy to call from many popular languages, […]

FRTB Curvature Risk Charge

Various risk charges must be calculated under the Standardised Approach of the FRTB. These risk charges are split into Delta, Vega and Curvature. Curvature Risk Charge is complicated to calculate as we must record MTM changes to large input shocks. We explain the calculations involved. For Rates products, the Curvature Risk Charge is not split by tenor […]

FRTB Vega Risk Charge

Various risk charges must be calculated under the Standardised Approach of the FRTB. These risk charges are split into Delta, Vega and Curvature. Vega Risk Charge is complicated to calculate as we must build several co-variance matrices. We provide a step-by-step explanation of all of the calculations involved. We use Excel throughout to calculate and illustrate the […]

FRTB – Modellable Risk Factors and Non-Modellable

Following on from my article FRTB – Internal Models or Standardised Approach,  I wanted to look at specific component of the Internal Model Approach (IMA), namely the fact that all risk factors are subject to a Modellable or Non-modellable requirement and non-modellable risk factors result in a higher capital charge. Background In January 2016, the Basel Committee on […]

FRTB SA – Residual Risk AddOn

Following on from my article FRTB – The Default Risk Charge,  I wanted to look at another specific component of the Standard Approach, namely the Residual Risk Add-On for instruments with non-linear payoffs. Background In January 2016, the Basel Committee on Banking Supervision (BCBS) published its Standards for Minimum Capital Requirements for Market Risk; also known as the […]

FRTB – Excel Calculator for the Standardised Approach

What is the market risk capital charge for a bank trading an interest rate position? We calculate some examples using the Sensitivities-based Method under FRTB standards We find that a standalone 10y USD IRS results in a market risk capital charge of nearly 10% of the swap notional Fundamental Review of the Trading Book Following […]

FRTB – The Default Risk Charge

Following on from my articles, Fundamental Review of the Trading Book and Internal Models or Standardised Approach,  I wanted to take a look at a specific component of the Market Risk Capital, namely the Default Risk Charge as required under the Standardised Approach. Background In January 2016, the Basel Committee on Banking Supervision (BCBS) published its Standards for Minimum […]

FRTB – Internal Models or Standardised Approach?

Following on from my article on Fundamental Review of the Trading Book – What You Need to Know, I wanted to look at the pros and cons of the Internal Models Approach over the Standardised Approach. Background In January 2016, the Basel Committee on Banking Supervision (BCBS) published its Standards for Minimum Capital Requirements for Market Risk; also known […]

Fundamental Review of the Trading Book – What You Need to Know

In January 2016, the Basel Committee on Banking Supervision (BCBS) published its Standards for Minimum Capital Requirements for Market Risk; also known as the Fundamental Review of the Trading Book (FRTB). These new standards replace parts of the Basel 2.5 reforms, which were introduced in 2009 to address the material undercapitalisation of trading book exposures during the […]