Regulatory and internal model validation services from CompatibL
- In FRTB, Curvature Risk is defined as the worst of up and down stress scenarios, where the risk factor is shifted by the amount of risk weight.
- Unlike the Delta and Vega risks, which are defined with respect to risk factor buckets, Curvature scenarios involve parallel shifts, which reduces their computational burden significantly compared to that of the Delta and Vega sensitivities.
- The Curvature capital requirement is calculated using:
where is the current level of risk factor , is the price of instrument depending on the current level of risk factor and is given on the next slide.