Explanation:
Under the Basel 2.5 framework, the total market risk capital charge comprises both the standard VaR component and the stressed VaR (SVaR) component. It is computed as:
Market Risk Capital = Max(VaR_{t-1}, m_r × VaR_avg) + Max(SVaR_{t-1}, m_s × SVaR_avg)
Normal VaR Component:
= Max($1,200,000, 3 × $1,400,000)
= Max($1,200,000, $4,200,000) = $4,200,000
Stressed VaR Component:
= Max($2,200,000, 3 × $2,000,000)
= Max($2,200,000, $6,000,000) = $6,000,000
Total Market Risk Capital Charge = $4,200,000 + $6,000,000 = $10,200,000.
Ultimate access to all questions.
No comments yet.
Q.20 A financial institution has a trading portfolio with the following characteristics:
$1,200,000 (10-day time horizon, 99% confidence level)$1,400,000 (10-day time horizon, 99% confidence level)$2,200,000 (10-day time horizon, 99% confidence level)$2,000,000 (10-day time horizon, 99% confidence level)Calculate the total market risk capital charge based on the Basel 2.5 framework.
A
$10,200,000
B
$9,200,000
C
$5,000,000
D
$4,987,000