sbm
Calculate sensitivity-based method (SBM) charge results for each portfolio
Since R2024b
Description
SBMResults = sbm(frtbsaObject)frtbsa object. For more information, see
Sensitivity-Based Method.
Also, you can use the sbmChart function to create a chart
for the SBM charge for all portfolios.
Examples
Input Arguments
Output Arguments
More About
Under the sensitivity-based method (SBM), banks calculate capital charges based on the sensitivities of their trading book positions to various risk factors.
These risk factors are determined by regulatory guidelines and include interest rate risk, credit spread risk, equity risk, foreign exchange risk, commodity risk, and others.
The SBM workflow involves the following steps:
Identification of Risk Factors — Banks must identify the risk factors that affect the pricing of their trading book instruments. Risk factors are categorized into different risk classes (for example, interest rate risk, credit spread risk, equity risk, commodity risk, and FX risk) and further divided into liquidity horizons and buckets as defined by the FRTB-SA regulation.
Sensitivities Calculation — Banks determine the sensitivities of their trading book positions to the prescribed risk factors. Sensitivities measure how the value of a position is expected to change in response to changes in the underlying risk factors.
Aggregation of Sensitivities — Aggregate the following sensitivities:
Delta risk — Aggregate delta sensitivities within each risk class to calculate the delta risk charge.
Vega risk — Compute the vega risk charge for options and other positions sensitive to volatility changes.
Curvature risk — Calculate the curvature risk charge, which captures the nonlinear risk of options and instruments with option-like characteristics.
Risk Weight Application — Each sensitivity is then multiplied by a corresponding risk weight, which is prescribed by the regulator. Risk weights are designed to reflect the risk associated with changes in the respective risk factors.
Correlation Effects — The standardized approach also accounts for correlations between risk factors within the same risk factor category. The prescribed correlations are used to calculate the aggregated risk within each risk factor category.
Capital Charge Aggregation — The risk-weighted sensitivities within each risk factor category are aggregated, taking into account the prescribed correlations, to determine the capital charge for each risk factor category.
Overall Capital Requirement — The capital charges for all risk factor categories are then added together to determine the overall capital requirement for the trading book under the sensitivity-based method.
The correlation calculations are done for each risk sensitivity (delta, vega, and curvature) and for three correlation scenarios. The three correlation scenarios take into consideration market stress times. FRTB-SA requires that the sensitivity-based charge of the portfolio is computed for these three correlation scenarios: high correlation, medium/base correlation, and low correlation. The medium/base scenario corresponds to the basic values of the correlation parameters. The low scenario consists of multiplying the correlation coefficients by
0.75and the high scenario consists of multiplying these correlation coefficients by1.25. These scenarios take into consideration market stress times. The total portfolio sensitivity-based capital risk charge is the largest of these three correlation scenarios.
Sensitvity-based method (SBM) components calculate capital requirements based on the sensitivities of the trading book positions to various risk factors.
In this framework, the following terminology applies:
Risk Factor Classes — SBM categorizes risk factors into several classes, such as interest rate risk, credit spread risk, equity risk, commodity risk, and foreign exchange risk. Each class has its own risk-weighting scheme.
Sensitivities — Banks must calculate the sensitivities of their trading book positions to the various risk factors. Sensitivities measure how the value of a position changes in response to changes in an underlying risk factor.
Risk Factor — Each sensitivity is then multiplied by a corresponding risk weight, which is prescribed by the regulation based on the liquidity and riskiness of the risk factor. The SBM accounts for correlations between risk factors within a risk class using a prescribed correlation matrix. This correlation allows for some diversification benefit within a risk class.
Bucket — A bucket is a categorization of positions for market risk capital calculation. It is a set of instruments of the same risk class that are grouped together by similar characteristics. For each class, there is a bucket definition. For example, for the GIRR class, each bucket refers to a currency type. For the Equity Risk class, each bucket is classified in terms of market, economy, and sector type.
References
[1] Bank for International Settlements. "MAR21 — Standardised Approach: Sensitivities-Based Method." March 2020. https://www.bis.org/basel_framework/chapter/MAR/21.htm.
[2] Bank for International Settlements. "MAR22 — Standardised Approach: Default Risk Capital Requirement." March 2020. https://www.bis.org/basel_framework/chapter/MAR/22.htm.
[3] Bank for International Settlements. "MAR23 — Standardised Approach: Residual Risk Add-On." March 2020. https://www.bis.org/basel_framework/chapter/MAR/23.htm.
[4] Bank for International Settlements. "CRE42 — Securitisation: External-Ratings-Based Approach (SEC-ERBA)." January 2023. https://www.bis.org/basel_framework/chapter/CRE/42.htm.
[5] Bank for International Settlements. "Basel Committee on Banking Supervision: Minimum Capital Requirements for Market Risk"." January 2019. https://www.bis.org/bcbs/publ/d457.pdf.
Version History
Introduced in R2024b
