BASEL REFORMS

The Default Risk Charge (DRC) for the Alternative Correlation Trading Portfolio (ACTP) is a distinct component of the FRTB framework. Its calculation methodology is unique because it is designed to handle portfolios with both long and short securitisation positions, such as index tranches and their hedges.

This document provides a detailed walkthrough of the DRC calculation specifically for securitisation positions not included in the ACTP (Alternative Correlation Trading Portfolio), focusing on the methodology outlined in the PRA regulations (Subsection 2, Articles 325z and 325aa).

This guide breaks down the FRTB ASA Default Risk Charge for non-securitisations into clear steps with regulatory references. See worked examples for equity, senior debt (75% LGD), and non-senior debt (100% LGD) to understand the process and LGD sensitivity.