CA-4.3 CA-4.3 General market risk calculation
CA-4.3.1
The capital requirements for general market risk are designed to capture the risk of loss arising from changes in market interest rates, i.e. the risk of parallel and non-parallel shifts in the
yield curve . A choice between two principal methods of measuring the general market risk is permitted, a 'maturity' method and a 'duration' method. In each method, the capital charge is the sum of the following four components:(a) The net short or long position in the whole trading book;(b) A small proportion of the matched positions in each time-band (the 'vertical disallowance');(c) A larger proportion of the matched positions across different time-bands (the 'horizontal disallowance'); and(d) A net charge for positions in options, where appropriate (see Chapter CA-8).October 07CA-4.3.2
Separate maturity ladders should be used for each currency and capital charges should be calculated for each currency separately and then summed, by applying the prevailing foreign exchange spot rates, with no off-setting between positions of opposite sign.
October 07CA-4.3.3
In the case of those currencies in which the value and volume of business is insignificant, separate maturity ladders for each currency are not required. Instead, the bank may construct a single maturity ladder and slot, within each appropriate time-band, the net long or short position for each currency. However, these individual net positions are to be summed within each time-band, irrespective of whether they are long or short positions, to arrive at the gross position figure for the time-band.
October 07CA-4.3.4
A combination of the two methods (referred to under Paragraph CA-4.3.1) is not permitted. Any exceptions to this rule will require the prior written approval of the Central Bank. It is expected that such approval will only be given in cases where a bank clearly demonstrates to the Central Bank, the difficulty in applying, to a definite Category of trading instruments, the method otherwise chosen by the bank as the normal method. It is further expected that the Central Bank may, in future years, consider recognising the duration method as the approved method, and the use of the maturity method may be discontinued.
October 07
