Calculation of Sensitivities for FRTB Standardized Approach

Abstract

Sensitivities are the core inputs to the Standardized Approach of the Fundamental Review of the Trading Book (FRTB) and are costly to implement and calculate for large portfolios and complex products. The internally calculated sensitivities by institutions may not be directly applicable for FRTB purpose due to different choices of risk factors. This paper introduces a new framework of defining and deriving FRTB sensitivities from the internally calculated sensitivities while keeping consistent risk measurement under the Standardized Approach framework, which will significantly improve efficiency of implementation, validation and model risk management for FRTB Standardized Approach and other similar regulatory programs, including SA-CVA (Credit Valuation Adjustment) VaR and ISDA-Standard Initial Margin Model (SIMM) etc.