Capital allocation under the Fundamental Review of the Trading Book

Quants propose an allocation method for internal model capital charges

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Facing the Fundamental Review of the Trading Book, banks need to allocate their capital to each business unit or risk position to evaluate the capital efficiency of their strategies. In this article, Luting Li and Hao Xing propose two computationally efficient allocation methods that are weighted according to liquidity horizon. Both methods provide more stable and less negative allocations under the FRTB than under the current regulatory framework

The Fundamental

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