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Fitch Learning

Fundamental Review of the Trading Book

Nov 14—15, 2019
2 days
London, United Kingdom
GBP 1295 ≈USD 1614
GBP 647 per day

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The Fundamental Review of the Trading Book (FRTB) is the largest and most profound market risk regulatory change in decades. The impact of FRTB goes far beyond the move from Value at Risk to Expected Shortfall: it involves a complete new way to identify, measure and hedge risk. In this new regulatory framework significant changes to the banking sector are anticipated at all levels, from data management, to trading, to governance. In this two-day crash course we give you the tools to successfully navigate this new financial regulation paradigm.

Key Learning Outcomes:

  • Review the main changes associated with the introduction of the FRTB
  • Examine the evolution from Value at Risk (VaR) to Expected Shortfall (ES)
  • Map the new boundary between the banking book and the trading book
  • Examine in detail the new standardized and internal model approaches
  • Discuss key elements such as Non-Modelable Risk Factors, Default Risk Charge (DRC), Correlation Trading Positions (CTP)
  • Evaluate the treatment of counterparty credit risk within FRTB

Course Content

The aim of this section is to review the main changes associated with the introduction of the Fundamental Review of the Trading Book. We start by answering a series of general questions covering various angles of this new market risk paradigm. Subsequently, we enumerate the key elements involved in the FRTB.

An Introduction to the FRTB

  • What is the FRTB?
  • What are the aims of the FRTB?
  • What is the timeline of the FRTB?
  • What are the key changes recommended by the Basel Committee?
  • What will be the consequences for banks?

The Key Elements of the FRTB

  • From value at risk (VaR) to expected shortfall (ES)
  • The new boundary between the trading and banking books
  • The new standard approach (SA)
  • Risk sensitivity and the SA
  • Internal models under review
  • Internal model-based approach (IMA) and liquidity horizons
  • Non-modelable risk factors
  • The default risk charge (DRC)
  • Correlation trading positions (CTP)
  • Running both SA and IMA in parallel?
  • Many computational challenges

The Books

In order to help us appreciate the new rules, in this session we make an explicit comparison of the “before” and “after” situation in both the Trading Book and the Banking Book, with a particular interest to delineate the boundary between them.

The trading book (TB) and banking book (BB) boundary

  • The classical TB and BB
  • The boundary before the FRTB
  • TB and BB internal risk transfers and regulatory arbitrage
  • Trading intent and ‘presumptive list’ of eligible assets
  • Intraday monitoring and measurement of market risk
  • Enhanced public disclosures

The Approaches

This section develops the necessary tools to understand the specific changes in the standardized approach and the internal model approach for the FRTB.

The standardized approach (SA)

  • The SA before the FRTB
  • Capital calculation using ES
  • Correlation trading positions under SA
  • New risk factors definitions
  • Correlation or disallowance factors for basis risk
  • Diversification application
  • Treatment of optionality

The internal model approach (IMA)

  • The IMA before the FRTB
  • ES to replace VaR and SVaR for tail risk
  • Asset-specific liquidity horizons
  • Non-modelable risk factors
  • DRC replacement of IRC

Counterparty Credit Risk

In this final segment, all the previous developments are put together to describe what the role of counterparty risk is in this new regulatory framework. In particular we discuss the practical issues associated with credit valuation adjustment (CVA) and capital valuation adjustment (KVA).

The new CVA capital framework

  • FRTB CVA and basic approach
  • Risk management XVA
  • Accounting and regulatory XVA
  • What about KVA?
  • Definition of CVA sensitivities
  • Computing CVA sensitivities with Monte Carlo Simulation
  • Modelling and computational issues


Detailed Description
Detailed Description

Next dates

Nov 14—15, 2019
2 days
London, United Kingdom
GBP 1295 ≈USD 1614
GBP 647 per day

How it works

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