Investigation of the Fundamental Review of the Trading Book
(2015) EXTM10 20151Department of Economics
- Abstract
- As Basel III is being implemented a new regulation framework for capital requirement is being developed called the Fundamental Review of the Trading Book. The major change is the change of risk measure, going from Value at Risk to Expected Shortfall. The effect of the new regulations for general interest rate risk (GIRR) is investigated both on a total capital requirement level and decomposed onto key rates. The results for a portfolio consisting of zero-weight bonds are that the capital requirement under both the standardized and internal approach is reduced compared to the internal approach under the current regulations. The introduction of the new regulations will strike very differently on portfolios depending on where on the yield... (More)
- As Basel III is being implemented a new regulation framework for capital requirement is being developed called the Fundamental Review of the Trading Book. The major change is the change of risk measure, going from Value at Risk to Expected Shortfall. The effect of the new regulations for general interest rate risk (GIRR) is investigated both on a total capital requirement level and decomposed onto key rates. The results for a portfolio consisting of zero-weight bonds are that the capital requirement under both the standardized and internal approach is reduced compared to the internal approach under the current regulations. The introduction of the new regulations will strike very differently on portfolios depending on where on the yield curve the risk is concentrated. This paper shows that the ratio between the new and current internal approach varies between 41.6% and 69.6% for the portfolios analyzed. The new standardized approach gives less capital requirement compared to the new internal approach independent of where the risk is concentrated. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/7397811
- author
- Zulfaj, Edi LU and Joelsson, Erik LU
- supervisor
- organization
- course
- EXTM10 20151
- year
- 2015
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- Key rates, GIRR, Capital Requirement, Basel III, Basel II, Expected Shortfall, Value at Risk
- language
- English
- id
- 7397811
- date added to LUP
- 2015-06-26 08:58:12
- date last changed
- 2015-06-26 08:58:12
@misc{7397811, abstract = {{As Basel III is being implemented a new regulation framework for capital requirement is being developed called the Fundamental Review of the Trading Book. The major change is the change of risk measure, going from Value at Risk to Expected Shortfall. The effect of the new regulations for general interest rate risk (GIRR) is investigated both on a total capital requirement level and decomposed onto key rates. The results for a portfolio consisting of zero-weight bonds are that the capital requirement under both the standardized and internal approach is reduced compared to the internal approach under the current regulations. The introduction of the new regulations will strike very differently on portfolios depending on where on the yield curve the risk is concentrated. This paper shows that the ratio between the new and current internal approach varies between 41.6% and 69.6% for the portfolios analyzed. The new standardized approach gives less capital requirement compared to the new internal approach independent of where the risk is concentrated.}}, author = {{Zulfaj, Edi and Joelsson, Erik}}, language = {{eng}}, note = {{Student Paper}}, title = {{Investigation of the Fundamental Review of the Trading Book}}, year = {{2015}}, }