FRTB's Sensitivity Based Approach Two-Part Webinar Series

The original capital accord from 1996 introduced two general methods to calculate market risk in the trading book, an Internal Model Approach (IMA) and a Standardized Approach (SA). However, it wasn’t until the financial crisis it was discovered that many banks were undercapitalized and incurred large trading losses, exposing the weakness of Basel II’s trading book. As a result, stricter regulations were enforced. In 2012, the Basel Committee started the Fundamental Review of the Trading Book (FRTB) alongside the implementation of Basel III. The Review was concentrated in Pillar I (capital requirements) and introduced the Sensitivity Based Approach (SBA) for SA calculations.

All banks subject to FRTB will be required to use the SA in some capacity, even if their trading desks utilize an IMA. Desks using an IMA will still need to calculate the SA and compare the two, with the SA possibly providing a floor to capital requirements. As such, the Sensitivity Based Approach will be a critical component of FRTB reporting, and while many banks are already prepared to conduct SBA calculations, many are not. What does the SBA entail, and how does it compare to an IMA in theory and in practice?

This two-part webinar series on FRTB's Sensitivity Based Approach features speakers Dr. Paolo Tarpanelli and Juan Vargas discussing the importance of the Sensitivity Based Approach, its methodology and offering case studies to show the potential business impact of these new FRTB regulations.

Dr. Tarpanelli and Mr. Vargas discuss:

  • FRTB insights
    • What Lead to FRTB
    • Current Framework
    • BCBS 352
  • Summary of Sensitivity Based Approach
  • Sensitivity Based Approach – Methodology
    • Underlying structure of SBA
    • Calculating the Risk-Charge
      • Delta Charge
      • Curvature Charge
      • Vega Charge
  • Case studies
    • Are delta and curvature charges well designed?
    • Current SA vs SBA

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