The Residual Risk Add-on (RRAO) is a component of the Advanced Standardised Approach (ASA) for market risk under the Fundamental Review of the Trading Book (FRTB). The RRAO is intended to be a simple, conservative capital charge that captures risks from instruments not fully covered by the SBM or DRC calculations.

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).