Financial Risk Manager Part 2
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In accordance with Basel II.5 standards, the regulatory body has mandated a multiplication factor of 3 to be applied to both the Value-at-Risk (VaR) and the stressed Value-at-Risk (stressed VaR) figures. Given this information, what would be the precise capital requirement for general market risk that the bank must adhere to?
Explanation:
The correct capital requirement for general market risk for the bank under Basel II.5 is calculated using the formula provided in the file content. The formula is applied at a 99.0% confidence level and takes into account both the VaR (Value at Risk) and stressed VaR values. The multiplication factors for both VaR and stressed VaR are set to 3 by the supervisory authority.
The calculation is as follows:
Calculate the maximum of the latest available VaR and three times the average 10-day VaR:
Calculate the maximum of the latest available stressed VaR and three times the average 60-day stressed VaR:
Add the results from step 1 and step 2 to get the total market risk capital requirement:
Therefore, the correct capital requirement is USD 4,557 million, which corresponds to option C.