Explanation:
The capital requirement for credit risk under the IRB approach is based on the Value at Risk (VaR) calculated using a one-year time horizon and a 99.9% confidence level. This is a standard practice recognized by regulators. The VaR is a statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over a specific time
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Q.2346 Astoria Bank from Marseille, France, has chosen the IRB approach to calculate its capital requirement for credit risk. In line with standard practice, the bank should calculate its:
A
Value at risk with a time horizon of 1 year and a confidence interval of 99.9%.
B
Value at risk with a time horizon of 1 year and a confidence interval of 99%.
C
Value at risk with a time horizon of 1 month and a confidence interval of 99.9%.
D
Value at risk with a time horizon of 10 days and a confidence interval of 99%.
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