Regulatory and internal model validation services from CompatibL
Margin Period of Risk
- FRTB-CVA requires that the model used to compute CVA sensitivities for collateralized counterparties includes the margin period of risk (MPoR), a period of time prior to counterparty default when the counterparties no longer exchange the prescribed margin or trade flows.
- For full collateralization (zero collateral threshold) and low collateral thresholds, MPoR is the primary contribution to the residual exposure in the presence of collateral.
- The recently completed FRTB-CVA QIS requested industry feedback for the
two alternatives for a supervisory floor for the MPoR length:
- Flat 10 business days for daily re-margining, or where is the re-margining period; or
- The current supervisory floor, as specified in Annex 4 of the existing Basel III standards, which is extended for (a) large netting sets that include more than 5,000 trades or (b) recent collateral disputes.