This paper assesses the impact on capital requirements of the Fundamental Review of the Trading Book (FRTB) based on a stylised financial portfolio sensible to the risk factors affected by the review. Our results show the order of magnitude of the increase across the two regulations and the two possible approaches: the standard approach and the internal model approach. We further disentangle the components of the expected increase implied by the FRTB. The most interesting result emerges for the internal model approach, whereby the increase in the capital charge is attributable not only to the change in the risk measure and the inclusion of longer liquidity horizons, but most importantly to the dampening of the diversification benefit.

An assessment of the fundamental review of the trading book: the capital requirement impact on a stylised financial portfolio / Pederzoli, Chiara; Torricelli, Costanza. - In: INTERNATIONAL JOURNAL OF BANKING, ACCOUNTING AND FINANCE. - ISSN 1755-3830. - 12:4(2021), pp. 389-403. [10.1504/IJBAAF.2021.118588]

An assessment of the fundamental review of the trading book: the capital requirement impact on a stylised financial portfolio

Costanza Torricelli
2021

Abstract

This paper assesses the impact on capital requirements of the Fundamental Review of the Trading Book (FRTB) based on a stylised financial portfolio sensible to the risk factors affected by the review. Our results show the order of magnitude of the increase across the two regulations and the two possible approaches: the standard approach and the internal model approach. We further disentangle the components of the expected increase implied by the FRTB. The most interesting result emerges for the internal model approach, whereby the increase in the capital charge is attributable not only to the change in the risk measure and the inclusion of longer liquidity horizons, but most importantly to the dampening of the diversification benefit.
2021
ott-2020
12
4
389
403
An assessment of the fundamental review of the trading book: the capital requirement impact on a stylised financial portfolio / Pederzoli, Chiara; Torricelli, Costanza. - In: INTERNATIONAL JOURNAL OF BANKING, ACCOUNTING AND FINANCE. - ISSN 1755-3830. - 12:4(2021), pp. 389-403. [10.1504/IJBAAF.2021.118588]
Pederzoli, Chiara; Torricelli, Costanza
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/1285681
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