FRTB managers face hard facts about risk factors

There are ways to reduce the capital charges caused by NMRFs, but they come at a price

Internal models are meant to appeal to banks because they allow regulatory capital requirements that more accurately reflect the risks banks are running. As the new trading book capital framework approaches, however, there’s a looming obstacle in the way of those more risk-sensitive measures: all the risk factors that cannot be accurately modelled because banks have insufficient price observations.

The Fundamental Review of the Trading Book (FRTB), finalised by the Basel Committee on Banking

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