The Fundamental Review of Trading Book (FRTB) from the Basel Committee overhauls the regulatory framework for minimum capital requirements for market risk. Facing the tightened regulation , banks need to allocate their capital to each of their risk positions to evaluate the capital efficiency of their strategies. This paper proposes two computational efficient allocation methods under the FRTB framework. Simulation analysis shows that both these two methods provide more liquidity horizon weighted, more stable , and less negative allocations than the standard methods under the current regulatory framework.
Facing the FRTB , banks need to allocate their capital to each business units or risk positions to evaluate the capital efficiency of their strategies. This paper proposes two computationally efficient allocation methods which are weighted according to liquidity horizon. Both methods provide more stable and less negative allocations under the FRTB than under the current regulatory framework.
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The Fundamental Review of Trading Book (FRTB) from the Basel Committee overhauls the regulatory framework for minimum capital requirements for market risk. Facing the tightened regulation
Facing the FRTB
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of their
business units or
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computational
computationally
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under the FRTB framework. Simulation analysis shows that both these two
which are weighted according to liquidity horizon. Both
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liquidity horizon weighted, more stable ,
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than the standard methods
under the FRTB than