Credit spread risk non-securitization

  • What is CTP in FRTB?

    Correlation Trading Portfolios (CTP): The FRTB introduces particularly punitive charges for this business line in terms of default and credit spread risks and by limiting the recognition of hedges..

  • What is the simplified approach of FRTB?

    FRTB Simplified Standardised Approach
    and liabilities must not exceed a certain level.
    The bank's total market risk-weighted assets, when using the RSBM, divided by its total riskweighted assets, should be less than a certain threshold..

  • A credit spread is relatively straightforward—the difference in yield between two debt securities that mature at the same time but come with different risks.
    Bonds with higher risks typically have higher yields.Sep 29, 2023
  • FRTB Simplified Standardised Approach
    and liabilities must not exceed a certain level.
    The bank's total market risk-weighted assets, when using the RSBM, divided by its total riskweighted assets, should be less than a certain threshold.
  • FRTB Standardized Approach consists of three risk changes: Sensitivity Based Risk Charge.
    Default Risk Charge.
    Residual Risk Add-on.
Answer: To compute vega GIRR, banks may choose a mix of log-normal and normal assumptions for different currencies. 1.5. Credit spread risk (non-securitisations).
Vega CSR securitisation (non-CTP): Vega risk factors are the implied volatilities of options that reference non-CTP credit spreads as underlyings (bond and CDS); 

Does credit spread risk play a role in current value risk measurement?

Many banks did take CSRBB into account in present value risk measurement and the economic ICAAP perspective.
However, the methods, models and processes were less developed compared to IRRBB.
By contrast, in the periodic perspective (incl. net interest in- come) credit spread risk has until now played only a minimal role.

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What are credit spread options?

Credit spread options are a type of derivative where one party transfers credit risk to another party, usually in exchange for a promise to make cash payments if the credit spread changes.
This type of contract is most common among debt securities that have low credit ratings.

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What are the DRC requirements for non-securitization & securitization?

DRC requirements provide some limited hedging recognition and banking book like treatment.
The default risk capital charge for non-securitization and securitization is independent from the other capital charges in the SA for market risk, in particular from the credit spread risk (CSR) capital charge.

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What is a spread risk?

Spread risks are not associated with contractual guarantees but rather originate from the intersection of interest rates, credit ratings and opportunity cost.
There are really two types of spread risk, although they are not mutually exclusive.


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