BASEL REFORMS

Interest Rate Delta (IRDL) measures the sensitivity of CVA to changes in risk-free interest rates. When yield curves shift, the impact propagates through both the exposure simulation and the discounting process, directly affecting CVA values. IRDL captures this fundamental risk by quantifying how a one-basis-point movement in interest rates translates into CVA capital requirements.

The Standardised Approach for CVA Risk (SA-CVA) is a sensitivity-based capital framework that calculates regulatory capital requirements for Credit Valuation Adjustment risk. Unlike the basic approach which applies formulaic calculations, SA-CVA measures how a bank's aggregate CVA changes in response to movements in granular risk factors such as interest rates, foreign exchange rates, credit spreads, equity prices, and commodity prices.

Under the Prudential Regulation Authority’s (PRA) near-final rules in PS9/24, the transition to the Basic Approach for CVA (BA-CVA) introduces a rigorous, formulaic framework for capitalizing counterparty credit spread risk. This technical walkthrough explores the final stages of the regulatory methodology: K Full and K Final.