Table of Contents
Document Overview
MAR23 Standardised approach: residual risk add-on (paras. 23.1-23.8) (effective as of 1 January 2023)
This chapter sets out the calculation of residual risk add-on under the standardised approach for market risk.
Version effective as of 01 Jan 2023
First version in the format of the consolidated framework, updated to take account of the revised implementation date announced on 27 March 2020.
Introduction
23.1 The residual risk add-on (RRAO) is to be calculated for all instruments bearing residual risk separately in addition to other components of the capital requirement under the standardised approach.
Instruments subject to the residual risk add-on
23.2 Instruments with an exotic underlying and instruments bearing other residual risks are subject to the RRAO.
23.3 Instruments with an exotic underlying are trading book instruments with an underlying exposure that is not within the scope of delta, vega or curvature risk treatment in any risk class under the sensitivities-based method or default risk capital (DRC) requirements in the standardised approach. [Examples of exotic underlying exposures include: longevity risk, weather, natural disasters, future realised volatility (as an underlying exposure for a swap).]
FAQ
FAQ1
Examples of exotic underlying exposures include: longevity risk, weather, natural disasters, future realised volatility (as an underlying exposure for a swap).
Is future realised volatility considered an “exotic underlying” for the purpose of the RRAO?
Yes, future realised volatility is considered an exotic underlying for the purpose of the RRAO