Under the Basel 2.5 framework, the Market Risk Capital charge combines both the standard Value at Risk (VaR) capital and the Stressed Value at Risk (SVaR) capital.

The formula is: $MRC = \max(\text{VaR}_{t-1}, m_c \times \text{VaR}_{avg}) + \max(\text{SVaR}_{t-1}, m_s \times \text{SVaR}_{avg})$

Given:

• Recent VaR ($\text{VaR}_{t-1}$) = $1,000
• Average recent VaR ($\text{VaR}_{avg}$) = $480
• Multiplier $m_c$ = 3.9
• Recent SVaR ($\text{SVaR}_{t-1}$) = $1,100
• Average SVaR ($\text{SVaR}_{avg}$) = $500
• Multiplier $m_s$ = 3.4

Step 1: Calculate Standard VaR Capital = \max(1000, 3.9 \times 480) = \max(1000, 1872) = \`$1`,872

Step 2: Calculate Stressed VaR Capital = \max(1100, 3.4 \times 500) = \max(1100, 1700) = \`$1`,700

Step 3: Total Market Risk Capital MRC = 1872 + 1700 = \`$3`,572