Answer-first summary for fast verification
Answer: FRTB requires that the stressed ES measure be used in determining market risk capital, rather than the VaR and stressed VaR measures that were used in Basel I and Basel II.5, respectively.
## Explanation Option D is correct because: - **Basel I** primarily used **VaR (Value at Risk)** for market risk capital calculation - **Basel II.5** introduced **stressed VaR** in addition to regular VaR - **FRTB (Fundamental Review of the Trading Book)** replaces both VaR and stressed VaR with **stressed Expected Shortfall (ES)** **Why other options are incorrect:** - **Option A**: FRTB actually emphasizes trading desk-level calculations and requires desk-level approval for internal models, rather than firm-wide calculations. - **Option B**: FRTB imposes stricter requirements for internal models approach and actually encourages the use of standardized approach by making it more risk-sensitive. - **Option C**: FRTB uses different liquidity horizons for different risk factors (10 days, 20 days, 40 days, 60 days, 120 days), not a standardized 10-day horizon for all risk factors. The key evolution in FRTB is the shift from VaR-based measures to stressed Expected Shortfall, which better captures tail risk and is more coherent from a risk measurement perspective.
Author: LeetQuiz .
Ultimate access to all questions.
No comments yet.
Q-119. must comply with under the Basel Committee's FRTB guidelines. The analyst explores how the FRTB guidelines evolved from the Basel I and Basel II.5 frameworks as well as the instructions for applying the guidelines. Which of the following is correct regarding the FRTB?
A
While Basel I and Basel II.5 allowed market risk to be calculated at the trading desk level, FRTB requires that market risk be calculated on a firm-wide basis.
B
While Basel I and Basel II.5 emphasized the use of a standardized approach to calculating market risk, FRTB encourages each bank to develop and rely on an internal models approach.
C
FRTB standardizes the liquidity horizon used for all risk factors in the market risk capital calculation as 10 days, rather than the different horizons used in Basel I and Basel II.5.
D
FRTB requires that the stressed ES measure be used in determining market risk capital, rather than the VaR and stressed VaR measures that were used in Basel I and Basel II.5, respectively.