Explanation:
Under the 1996 Market Risk Amendment to the Basel I Accord, banks were required to calculate their market risk capital charges using Value at Risk (VaR). This VaR was stipulated to be calculated based on a 10-day holding period (horizon) and a 99% confidence level.
Later iterations, specifically under the Fundamental Review of the Trading Book (FRTB), transitioned the required market risk measure from VaR to Expected Shortfall (ES) at a 97.5% confidence level to better capture tail risks.
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Q.4026 Under Basel I regulations, banks were required to calculate market risk capital based on a ___ calculated for a ___ horizon with a ___ confidence interval.
A
Value at risk; 250-day; 99.5%
B
Value at risk; 10-day; 99%
C
Expected shortfall; 10-day; 99.9%
D
Expected shortfall; 10-day; 95%
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