Market risk charge of the trading book: a comparison of the Basel II and Basel III

• Author(s): Brito, Flávia manique
• Date: 2015
• Persistent ID: http://hdl.handle.net/10362/15343
• Origin: Repositório Institucional da UNL
• Subject(s): Market risk; Basel; Standardized model; Internal model
• Document Type: Master thesis
• Language: English
• Advisor(s): Ferreira, Miguel
• Contributor(s): RUN

Description

This paper aims to investigate if the market capital charge of the trading book increased in Basel III compared to Basel II. I showed that the capital charge rises by 232% and 182% under the standardized and internal model, respectively. The varying liquidity horizons, the calibration to a stress period, the introduction of credit spread risk, the restrictions on correlations across risk categories and the incremental default charge boost Basel III requirements. Nevertheless, the impact of Expected shortfall at 97.5% is low and long term shocks decrease the charge. The standardized approach presents advantages and disadvantages relative to internal models.

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