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).

Under the FRTB Standardised Approach, the intra-bucket capital charge is the highest output from three prescribed correlation scenarios: Low, Medium, and High. This interactive guide isolates this calculation to demonstrate how the relationship between your positions—specifically whether they have the same or different signs—determines which scenario becomes the most punitive.