Document ID: chunk:federal_register_of_legislation:F2023L00288:reg:5:p16
Version: federal_register_of_legislation:F2023L00288
Segment Type: reg
Provision Reference: reg 5 (pt 16/27)
Character Range: 66863–69581

1.3 and items 2.1 to 2.3 of Table 13; or

       (ii)         if the ADI is calculating the specific risk modelling surcharge by identifying sub-portfolios that contain specific risk, the ADI is to report the VaR and stressed VaR amounts for sub-portfolios containing specific risk and sub-portfolios not containing specific risk under items 1.4 to 1.5 and items 2.4 to 2.5 of Table 13 for the interest rates and equities categories, respectively.

Total market risk

Depending on the nature and capability of the risk measurement system in place, ADIs using the internal model approach should employ one of the following three methods to calculate a capital charge.

Method one

An ADI using this method calculates a total VaR and stressed VaR number across those asset classes to which the internal model applies. In calculating this number, an ADI will have discretion to recognise correlations both within and across asset classes.

Method two

An ADI may calculate individual VaR and stressed VaR numbers for each asset class separately. An ADI has the option of incorporating into the calculation, correlations between instruments within an asset class.  The total VaR and stressed VaR measure is the sum of the measures for each asset class.

Method three

If an ADI's risk measurement system is structured in such a way that the ADI has the capacity to calculate VaR and stressed VaR measures both across and within asset classes (i.e. a combination of method one and method two), then the ADI should report the VaR and stressed VaR numbers determined using both methods. Owing to diversification effects, the capital charge which results from calculating a VaR and stressed VaR measure across all asset classes (i.e. method one) will be lower than the capital charge which results from calculating VaR and stressed VaR measures for individual asset classes and summing them (i.e. method two). The capital requirement will be based on method one.

Table 13: Value-at-Risk results

Method one

An ADI using method one is to report all numbers under item 5 Total.

Column 1 - End of quarter VaR

Report the VaR number calculated across all asset classes for the last day in the reporting period.

Column 2 - Average VaR over past 60 trading days

Calculate the average daily total VaR measure for the 60 trading days, up to and including the last day of the quarter.

Column 3 - End of quarter stressed VaR

Report the stressed VaR number calculated across all asset classes for the last day in the reporting period.

Column 4 - Average stressed VaR over past 60 trading days

Calculate the average daily total stressed VaR measure for the 60 trading days, up to and including the last day of