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  • CA-9.3 CA-9.3 General Market Risk Calculation

    • CA-9.3.1

      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 Section CA-13).
      Amended: January 2012
      Amended: April 2011
      Apr 08

    • CA-9.3.2

      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.

      Apr 08

    • CA-9.3.3

      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.

      Apr 08

    • CA-9.3.4

      A combination of the two methods (referred to under Paragraph CA-9.3.1) is not permitted. Any exceptions to this rule will require the prior written approval of the CBB. It is expected that such approval will only be given in cases where a bank clearly demonstrates to the CBB, 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 CBB may, in future years, consider recognising the duration method as the approved method, and the use of the maturity method may be discontinued.

      Amended: January 2012
      Apr 08