Demo

PrevioRisk

Connect with us:

Categories

Basel Corporate CVA Definitions How To Margining Netting Risk Sensitivities Stress Testing

Latest articles

Download Brochure
(PDF)
Get free CCR
certificate now

Category: Basel

BCBS Publishes Finalized Margin Requirements for Non-Centrally Cleared Derivatives

On September 2nd, the Basel Committee and IOSCO released the final framework for margin requirements for non-centrally cleared derivatives.

According to the document, non-centrally cleared derivative trades will be subject to initial and variation margin, in order to mitigate the inherent counterparty risk. The framework has been designed to reduce systemic risks related to over-the-counter (OTC) derivatives markets, as well as to provide firms with appropriate incentives for central clearing while managing the overall liquidity impact of the requirements.

Compared with the near-final framework proposed earlier this year, the final document exempts some deal types from initial margin requirements (such as physically settled FX forwards and swaps). Also, it permits “one-time” re-hypothecation of initial margin collateral among the features to mitigate the liquidity impact associated with the requirements.

The implementation will be spanned over a four-year period, with a first milestone on 1st December 2015.

Full text of the document is available at http://www.bis.org/publ/bcbs261.pdf

Topic: Basel Margining

White paper: Basel Capital Requirements for Portfolio of Derivatives

Our latest white paper provides practical guidelines on estimation of Exposure at Default, CCR default capital charge and standardized CVA capital charge, based on the methods proposed in Basel 2 and 3, and compares the capital charge imposed under different methods (Current Exposure Method, Standardized Method, Internal Model Method, and the recently proposed Non-Internal Model Method) and risk weighting approaches (Standardized and Internal Risk Based), using the calculations performed for a portfolio of derivatives in PrevioRisk software.

basel

The results of practical implementation show that Internal Model Method of EAD estimation produces about a quarter (27-28%) lower CCR capital charge than Standardized and NIMM methods. Particularly, IMM allows to recognize fully the effect of netting and margining, and saves capital for trades influenced by market factors with low volatility. In addition, the results confirmed that IRB risk weighting approach results in lower required capital estimates than the Standardized one, with capital relief from IRB implementation reaching 35-40%.

The full text of white paper is available at our Research Papers page. You can also download it by the link below:

Download

Topic: Basel CVA How To

Basel III CVA Capital Decomposition

When a bank does not have regulatory approval to use Advanced CVA capital charge, which allows to calculate regulatory capital on counterparty-by-counterparty basis, the bank must calculate capital on portfolio level using the following formula (see Basel III: A global regulatory framework for more resilient banks and banking systems para. 103).

Latex formula
 
As was mentioned above, this is formula for Standardized CVA capital charge Latex formula calculated at portfolio level, which in the given form does not allow to define main drivers and components of CVA capital charge. For this purpose we use Latex formula decomposition, based on EAD on customer or even trade level. As we will see, it is possible to manage portfolio Latex formula by hedging separate trades. Here is the example of CVA capital decomposition for portfolio of 250 derivatives with total notional of 4.5 bln (all numbers are in USD mln).
cva2

Read more…

Topic: Basel CVA How To

satta king 786