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
Featured Speakers
Paolo Tarpanelli, PhD
Paolo Tarpanelli works as a Senior Financial Engineer in Numerix’s Milan office, helping European clients price and manage the risk of their multi-asset class derivative portfolios. Prior to Numerix, Dr. Tarpanelli worked as Quantitative Pre-Sales Analyst at Thomson Reuters where he implemented pricing models for structured products and developed new tools for portfolio optimization techniques and high frequency trading. Before Thomson Reuters, he worked as a Quantitative Analyst in the Department of International Structured Products at Merrill Lynch. Dr. Tarpanelli holds an Economics degree in Quantitative Methods from the Universita degli Studi of Perugia, where he also received his PhD which focused on Risk Management in Commodity Markets.
Juan Vargas
Mr. Vargas joined Numerix in August 2014, where he is currently working as Senior Financial Engineer. He is focused on developing solutions for clients to price vanilla and exotic products as well as market risk and valuation adjustment measures using Numerix analytics. Before joining Numerix, Mr. Vargas worked as Quantitative Analyst in the valuation services team at Pricing Partners (now part of Thomson Reuters). Mr. Vargas holds a Master’s degree in Financial Engineering from Universite Paris Dauphine.
As Chief Marketing Officer and Executive Vice President of Global Marketing & Corporate Communications, James leads the company’s global marketing and corporate communications efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to clients in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing.
Since joining Numerix in 2008, James has launched the organization’s award-winning thought leadership program, bringing to light challenges and insights from Numerix market experts. He also hosts the Numerix Video Blog, tackling the challenges pressing the derivatives markets—from regulatory issues to trading strategies.
Prior to joining Numerix, James served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, he built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. Prior to Fitch, James was a member of the communications team at Moody's Investors Service.
