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The BCBS has presented a new standard approach for measuring risk for a portfolio, which is based on sensitivities, that is “delta”, “vega” and “curvature” risks.

Delta risk measures the change in price resulting from a small price or rate shock to the value of each relevant risk factor. Vega risk is the risk due to variations in the volatility for options - computed as the product of the vega of a given option and its implied volatility; and curvature risk captures the additional risk due to movement in the delta when the price changes.

The text does not contain formulae: how is the curvature risk actually computed?

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    $\begingroup$ It looks to me the gamma risk. $\endgroup$ – Gordon Jul 11 '16 at 15:18
  • $\begingroup$ This is my interpretation as well $\endgroup$ – Quantuple Jul 11 '16 at 16:03
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The formulae are on p17 of the document attached to the link you included.
http://www.bis.org/bcbs/publ/d352.pdf It's just the profit or loss due to a specified shock in the underlying, which is not explained by the local delta of the position.

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From the description, is it beta? Changes of Delta is captured by Beta, cause the price and value relation is not linear, so by simply considering Delta, it omits the shape of the relation curve.

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  • $\begingroup$ I think when you write "beta" you actually mean "gamma"..? $\endgroup$ – LocalVolatility Oct 31 '16 at 13:03

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