- Standardised Approach
Delta and Vega Sensitivities Using Finite Shifts
Default Risk Charge
Residual Risk Add-On
Risk Weights and Correlations for GIRR
Risk Weights and Correlations for FX
Regulatory and internal model validation services from CompatibL
- The sensitivities-driven part of the overall capital requirement (the first three terms in the
expression for )
is calculated by aggregating the following thee risk measures:
- Delta is the risk measure based on sensitivities of a bank’s trading book to regulatory delta risk factors, i.e. changes in the underlying risk factor such as IR, FX, etc.;
- Vega is the risk measure based on sensitivities to the changes in the volatility of the underlying risk factor;
- Curvature is a stress scenario based risk measure which captures the incremental risk not captured by the delta risk of price changes in the value of an option.
- Note that the curvature contribution to is based on two stress scenarios involving an upward shock and a downward shock to a given risk factor, with shock magnitude being the risk weight.
- This makes the curvature term fundamentally different from the second order derivative such as gamma or cross-gamma.