10
votes
Why would Basel III prevent price discovery at credit markets?
The argument about Basel is an adjunct to the central bank argument. There, a relatively price-insenstive CB either distorts credit by buying it directly (ECB, Fed wrt Agencies). Or distorts it ...
- 5,041
5
votes
Basel compliant Bonds
The journalist that wrote this article doesn't understand what he's writing about. When such articles appear on Bloomberg or Reuters, they are usually computer-generated, so programming bugs can be ...
- 12k
4
votes
Why would Basel III prevent price discovery at credit markets?
Assume, for a moment, that all of the math behind modern portfolio theory is incorrect. See, for example, this video on deriving the distribution of returns. Without the normality assumption, ...
- 4,359
4
votes
Accepted
EAD = Drawn amount + Undrawn amount * CCF?
Your equation is right. There are 2 ways to write EAD:
EAD = Drawn + a x Undrawn; or
EAD = a x Limit.
In both equations, a is called CCF but it is derived/estimated differently depending on which ...
- 256
3
votes
How does the bank uses the provisioning amount and RWA based capital adequacy
Q1 does not make sense. Bank capital is not "invested" in a specific asset such govt securities. Bank Capital is concerned with the Sources (not the Uses) of the bank's funds and is the ...
- 10.9k
3
votes
Accepted
Dominating credit risk modeling approaches for capital calculation in banks
The EBA performs the HDP (high default portfolio) and LDP (low default portfolio) benchmarking exercises, which would be relevant. You can find it on their website. Here are a couple of examples:
...
- 6,204
3
votes
Expected Shortfall Basel III style: what is the idea?
I believe the document that @clarkmaio referred to is Minimum capital requirements for market risk and the issue described can be found on page 52.
As explained here:
The revised FRTB rules require ...
- 1,830
3
votes
Accepted
Difference between the Basel IRB and the Vasicek formula
The paper continues "The quantity p(Y) provides the loan default probability under the given scenario."
But the default probability is 0.001, not 0.999 as in the IRB version. So G(0.999) = -G(1 - 0....
- 66
2
votes
Market Risk - Trading and Banking book in light of Basel III
High level Answer:
Trading Book: All the books held in Capital Markets or Investment Banking Division of a Bank. Instruments will include:Swaps, Stocks, Bonds, etc.
Banking Book: All the books held ...
- 21
2
votes
Accepted
Effects of hedges on counterparty exposure used for RWA computation
So, basically, the answer is no.
For capital requirements Basel has three categories:
a) Counterparty Credit Risk
b) Market Risk
c) Operation Risk
All RWA calculations are additive.
If your hedge ...
- 9,215
2
votes
Accepted
How to add Risks-Not-In-VaR (RNIV) to VaR under Basel III
I assume this is UK specific as RNIV is a PRA concept. You can’t recognise diversification as per the requirements which are detailed in the ss13/13: see section 2.
https://www.bankofengland.co.uk/-/...
- 6,204
2
votes
Accepted
How is internal risk transfer different than moving from banking book to trading book?
Moving assets between banking and trading books would count as redesignation (paragraph 29). Internal risk transfer is the transfer of risk between the books (say banking and trading books) via an ...
- 6,204
2
votes
Accepted
Use of PIT vs TTC PD in a Merton one-factor model
The first equation is already a PIT PD if $\displaystyle PD_{i}$
is substituted by TTC PD. The challenges of using this model are:
(1) $\displaystyle \rho _{i}$, the asset correlation, is very ...
- 256
2
votes
Accepted
Rule of Traffic light
According to this reference:
The back testing approach of the Basel Committee (Basel Committee for
banking Basel Committee on Banking Supervision, 1996), often called
the “traffic light” approach, ...
- 8,062
1
vote
Square root specification of parameters in factor models
Why is there a square root in the formulation for the asset value $ X_i $ given the common factor $ Y $ and the idiosyncratic component $ Z_i $ below?
$$ X_i=\sqrt{\rho}\,Y+\sqrt{1-\rho}\,Z_i,$$
As ...
- 1,352
1
vote
Accepted
Square root specification of parameters in factor models
The main motivation for the use of Vasicek single factor framework, is that the model produce analytically tractable formulas that are easy to implement and does not require any extensive numerical ...
- 4,186
1
vote
Margin Requirement model for CCP and non-central cleared OTC derivatives
Agree with @Kermittfrog, your request is not very clear. A common methodology for calculating initial margin for uncleared OTC derivatives is SIMM.
CCP's all have their own method. For this reason, ...
- 8,193
1
vote
Capital Adequacy Ratio Basel 3
I honestly wouldn't read too much into the 8% figure. It's just a historical ballpark figure for minimum adequacy to weather all but the biggest shocks (in which case, it would be sensible and ...
- 5,041
1
vote
Calculating the long run average default rate when the portfolio changes during the year
I don't know the answer to this and am responding purely out of interest and idea sharing, since I like the question.
Could this work as a Parametric intensive computational statistical approach;
1) ...
- 9,215
1
vote
Modelling operational risk for Basel pillar 2 (internal model for OpRisk VaR)
Not a complete answer put perhaps partial help.
What alternatives do we have for pillar 2?
Hard to say. There doesn't seem to be any specific alternatives, apart adjusting your old procedures to ...
- 215
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