I am trying to generate/prove the magnitude of the over-conservativeness of the regulatory VaR (internal models) under Basel III against what a more accurate VaR would be. However, I can't seem to find what the Basel III standard way to add RNIVs to VaR anywhere on google.
Basically, I have a basic Historical simulation-based VaR (which has the usual yield curve and FX rates). I have generated RNIV (risks-not-in-VaR) that are the (a) tenor basis, (b) cross-currency basis and (c) OIS-Libor spreads.
Now, I know and can estimate the correlations of these RNIV market-data to the yield curve, and I believe an accurate way is to add these RNIVs to the base VaR using these correlations.
However, I have been challenged that I need to do simple additive of these RNIVs to the base VaR, because Basel III rules states so. I can't seem to find these explicit rules anywhere.
Any regulatory capital rules expert out there?