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Market Risk: Fundamental Review of the Trading Book (FRTB)

  • Ioannis Akkizidis
  • Lampros Kalyvas
Chapter

Abstract

The trading book consists of actively traded positions which are facing financial losses due to the fluctuation of the underlying market risk factors. Since the latest market risk framework did not adequately capture the severity of such losses, the BCBS proposed a new framework for the estimation of the minimum capital requirements for market risk, also known as the Fundamental Review of the Trading Book (FRTB) framework (BCBS, Fundamental Review of the Trading Book: A revised market risk framework, 2013; BCBS, 2016a).

The FRTB proposals revise the changes in the philosophy for the valuation of market risk under both the standardised approach (SA) and the internal model approach (IMA). The new framework considers market liquidity risk under both approaches, whereas under the advanced IMA it introduces the estimation of the expected shortfall (ES) substituting the value at risk (VaR) as a measure for the assessment of market risk.

References

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Ioannis Akkizidis
    • 1
  • Lampros Kalyvas
    • 2
  1. 1.Employed by Wolters KluwerZurichSwitzerland
  2. 2.Employed by European Banking AuthorityLondonUK

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