BASEL REFORMS

This guide breaks down the complex process of calculating regulatory capital for Equity Vega risk under the FRTB's Advanced Standardised Approach. We provide a practical, step-by-step walkthrough of the Sensitivities-Based Method, showing how individual option risks are aggregated using supervisory weights and correlations to arrive at a final capital charge.

This article breaks down the FRTB Advanced Standardised Approach for the GIRR Vega capital charge. Follow our step-by-step guide, which uses a practical portfolio example to show how to apply regulatory risk weights and correlations. Understand the key drivers of the final capital requirement by seeing how the rules are applied in practice across three scenarios.

Under the PRA's Advanced Standardised Approach, Delta and Vega risk calculations share the same aggregation formulas but differ fundamentally in their inputs. While Delta uses a granular approach to measure sensitivity to price changes, the simpler Vega framework leverages the Delta correlations as a foundation to measure sensitivity to volatility.