BASEL REFORMS

The Add-On is the engine of SA-CCR. It estimates how much a derivatives portfolio's exposure could grow over the remaining life of its trades, and it drives the Potential Future Exposure (PFE) — one of the two inputs to the Exposure at Default.

This session focuses on Commodity Vega (CMVG), which measures the risk of changes in the implied volatility of commodity prices. Unlike delta risk, which captures changes in commodity spot prices themselves, vega risk quantifies how CVA value changes when commodity volatility shifts. This is particularly important for portfolios with optionality, where volatility movements can significantly impact valuations independent of directional price changes.

This session focuses on Equity Vega (EQVG), which measures the sensitivity of CVA to changes in equity volatility. EQVG captures how shifts in implied volatility across equity markets affect the valuation of derivatives and hedging instruments within the CVA framework.