Module 19 · Advanced
FRTB & market-risk capital
The last module was counterparty risk. This is marketrisk — capital for the trading book's own exposure to prices moving. After 2008 exposed how weak the old rules were, regulators rebuilt them as the Fundamental Review of the Trading Book (FRTB).
Its standardized sensitivities-based method takes your delta, vega and curvature sensitivities, weights them, and aggregates them — but with a twist: it runs the aggregation under three correlation scenarios (low, medium, high) and charges the worst, so you can't assume correlations stay friendly in a crisis. The bank-model alternative replaces the old VaR with Expected Shortfall across several liquidity horizons, and penalizes non-modellable risk factors — risks without enough real price data to model. Move your sensitivities and watch which scenario becomes the binding one.
🎛 FRTB capital calculator
Rate sensitivities — DV01 per tenor ($/bp)
Market-risk capital charge (worst of the three)
$1,186,923
FRTB (the Fundamental Review of the Trading Book) overhauled how banks capitalize market risk. Its standardized sensitivities-based method weights each risk sensitivity, then aggregates them under three prescribed correlation scenarios — low, medium and high — and charges the worst. (The internal-model alternative replaces VaR with Expected Shortfall across liquidity horizons, and penalizes non-modellable risk factors without enough price data.) Flip your sensitivities to opposite signs and watch which scenario becomes the worst case. Educational tool — not investment advice.
Things to try
- • Make all sensitivities the same sign — the high-correlation scenario tends to bind (aligned risks add up).
- • Mix opposite signs — the low-correlation scenario often becomes the worst case (offsets vanish).
- • Either way the charge is the maximum of the three — the conservative choice.