<scp>IRC</scp> and <scp>CRM</scp>: Modelling Framework for the ‘Basel 2.5’ Risk Measures

Wilkens, Sascha; Brunac, Jean-Baptiste; Chorniy, Vladimir

doi:10.1111/j.1468-036x.2013.12015.x

Cited by 7 publications

(1 citation statement)

References 27 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The authors also find that majority of the banks utilize historical simulations, the same method used in this study. Driven by the lack of industry consensus on the Internal Models approach for Basel 2.5, Wilkens et al (2013) provide a working example of VaR calculations using two alternate methods: Incremental Risk Charge and Comprehensive Risk Measure. Unfortunately, their use of selected risk factor models to derive simulation-based loss distributions may be biased since they lack uniformity across banks.…”

Section: Literaturementioning

confidence: 99%

Conceptual Framework for Examining the Impact of Basel 2.5 on Market Risk Capital

Obi

Sil

2015

JFI

View full text Add to dashboard Cite

This study presents a conceptual framework that highlights the overreaching impact of Basel 2.5 on market risk capital. The Basel accords provide the basis for the calculation of the minimum capital that banks should maintain to fully absorb their credit, market, and operational risks. In Basel 2.5, the calculation of market risk capital is enhanced by the inclusion of stressed value-at-risk, a new metric designed to account for future periods of extreme market volatility.As this study demonstrates, however, the use of this additional risk estimator often leads to the unintended consequence of excessive and costly capital charge, especially when the stressed period is overshadowed by more recent but less turbulent market events.

show abstract

Section: Literaturementioning

confidence: 99%

Conceptual Framework for Examining the Impact of Basel 2.5 on Market Risk Capital

Obi

Sil

2015

JFI

View full text Add to dashboard Cite

show abstract

Gaussian dependence structure pairwise goodness-of-fit testing based on conditional covariance and the 20/60/20 rule

Woźny,

Jaworski,

Jelito

et al. 2025

Journal of Multivariate Analysis

View full text Add to dashboard Cite

Transition probability matrix methodology for incremental risk charge

et al. 2014

View full text Add to dashboard Cite

As part of Basel II's incremental risk charge (IRC) methodology, this paper summarizes our extensive investigations of constructing transition probability matrices (TPMs) for unsecuritized credit products in the trading book. The objective is to create monthly or quarterly TPMs with predefined sectors and ratings that are consistent with the bank's Basel PDs. Constructing a TPM is not a unique process. We highlight various aspects of three types of uncertainties embedded in different construction methods: 1) the available historical data and the bank's rating philosophy; 2) the merger of one-year Basel PD and the chosen Moody's TPMs; and 3) deriving a monthly or quarterly TPM when the generator matrix does not exist. Given the fact that TPMs and specifically their PDs are the most important parameters in IRC, it is our view that banks may need to make discretionary choices regarding their methodology, with uncertainties well understood and managed.

show abstract

IRC and CRM: Modelling Framework for the ‘Basel 2.5’ Risk Measures

Cited by 7 publications

References 27 publications

Conceptual Framework for Examining the Impact of Basel 2.5 on Market Risk Capital

Conceptual Framework for Examining the Impact of Basel 2.5 on Market Risk Capital

Gaussian dependence structure pairwise goodness-of-fit testing based on conditional covariance and the 20/60/20 rule

Transition probability matrix methodology for incremental risk charge

Contact Info

Product

Resources

About