drc
Calculate default risk capital (DRC) charge results for each portfolio
Since R2024b
Description
computes the default risk capital (DRC) charge results for each portfolio using the
DRCResults
= drc(frtbsaObject
)frtbsa
object. For more information, see
Default Risk Capital.
Examples
Calculate Default Risk Capital Using frtbsa
Object
Use a frtbsa
object and the drc
function to calculate the default risk capital (DRC) charge results for each portfolio. FRTB-SA (Standardized Approach for Fundamental Review of Trading Book) is a Basel Committee on Banking Supervision framework forcalculating market capital risk requirements that is based on a set of standardized risk factors.
Create frtbsa Object
Use bank format for numeric data to use two decimal places.
format bank
Define the ISDA® FRTB-SA CRIF file.
FRTBSACRIF = "FRTBSA_CRIF.csv";
Define the DRC reference date.
DrcRefCOBDate = datetime(2023,9,21);
Use frtbsa
to create the FRTB-SA object.
myFRTBSA = frtbsa(FRTBSACRIF,DRCValuationDate=DrcRefCOBDate)
myFRTBSA = frtbsa with properties: CRIF: [159×18 table] NumPortfolios: 2.00 PortfolioIDs: [2×1 string] Portfolios: [2×1 frtbsa.Portfolio] Regulation: "Basel_d491" DomesticCurrency: "USD" DRCValuationDate: 21-Sep-2023 NumDaysYear: 365.00
Examine Output
Display the contents of the ISDA FRTB-SA CRIF file.
myFRTBSA.CRIF
ans=159×18 table
PortfolioID TradeID Variant SensitivityID RiskType Qualifier Bucket Label1 Label2 Amount AmountCurrency AmountUSD Label3 EndDate CreditQuality LongShortInd CoveredBondInd TrancheThickness
___________ ________ ____________ _____________ ____________ __________ ______ _________ ___________ _________ ______________ _________ ______ _______ _____________ ____________ ______________ ________________
"P1" "EQD_a1" <missing> "P1_EQD_a1" "EQ_DELTA" "ISSUER A" "1" <missing> "SPOT" 8250.00 "USD" 8250.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "EQD_a2" <missing> "P1_EQD_a2" "EQ_DELTA" "ISSUER A" "1" <missing> "REPO" 8333.33 "USD" 8333.33 NaN NaT <missing> <missing> <missing> NaN
"P1" "EQD_b1" <missing> "P1_EQD_b1" "EQ_DELTA" "ISSUER B" "2" <missing> "SPOT" 22000.00 "USD" 22000.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "EQV_a1" "Variant 1" "P1_EQV_a1" "EQ_VEGA" "ISSUER A" "1" "0.5" <missing> -50.00 "USD" -50.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "EQV_a2" "Variant 1" "P1_EQV_a2" "EQ_VEGA" "ISSUER A" "1" "1" <missing> 200.00 "USD" 200.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "EQV_b1" "Variant 1" "P1_EQV_b1" "EQ_VEGA" "ISSUER B" "2" "0.5" <missing> -166.67 "USD" -166.67 NaN NaT <missing> <missing> <missing> NaN
"P1" "EQC_a1" "Variant 1a" "P1_EQC_a1" "EQ_CURV" "ISSUER A" "1" "0.5" <missing> -18910.00 "USD" -18910.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "EQC_a1" "Variant 1a" "P1_EQC_a1" "EQ_CURV" "ISSUER A" "1" "-0.5" <missing> 6526.25 "USD" 6526.25 NaN NaT <missing> <missing> <missing> NaN
"P1" "EQC_b1" "Variant 1a" "P1_EQC_b1" "EQ_CURV" "ISSUER B" "2" "0.5" <missing> -6288.00 "USD" -6288.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "EQC_b1" "Variant 1a" "P1_EQC_b1" "EQ_CURV" "ISSUER B" "2" "-0.5" <missing> 6120.00 "USD" 6120.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "CMD_a1" <missing> "P1_CMD_a1" "COMM_DELTA" "COAL" "1" "0" "NEWCASTLE" 2000.00 "USD" 2000.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "CMD_a2" <missing> "P1_CMD_a2" "COMM_DELTA" "COAL" "1" "0" "LONDON" -500.00 "USD" -500.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "CMD_b1" <missing> "P1_CMD_b1" "COMM_DELTA" "BRENT" "2" "0" "LE HAVRE" 666.67 "USD" 666.67 NaN NaT <missing> <missing> <missing> NaN
"P1" "CMD_c1" <missing> "P1_CMD_c1" "COMM_DELTA" "WTI" "2" "2" "OKLAHOMA" -875.00 "USD" -875.00 NaN NaT <missing> <missing> <missing> NaN
"P1" "CMV_a1" "Variant 1" "P1_CMV_a1" "COMM_VEGA" "COAL" "1" "0.5" <missing> 333.33 "USD" 333.33 NaN NaT <missing> <missing> <missing> NaN
"P1" "CMV_a2" "Variant 1" "P1_CMV_a2" "COMM_VEGA" "COAL" "1" "1" <missing> -100.00 "USD" -100.00 NaN NaT <missing> <missing> <missing> NaN
⋮
Display the number of portfolios and their IDs.
myFRTBSA.NumPortfolios
ans = 2.00
myFRTBSA.PortfolioIDs
ans = 2×1 string
"P1"
"P2"
Display the properties of the first Portfolio
object.
myFRTBSA.Portfolios(1)
ans = Portfolio with properties: PortfolioID: "P1" Trades: [69×1 frtbsa.Trade] RiskTypes: [69×1 string]
Display risk types of the portfolio.
myFRTBSA.Portfolios(1).RiskTypes
ans = 69×1 string
"EQ_DELTA"
"EQ_DELTA"
"EQ_DELTA"
"EQ_VEGA"
"EQ_VEGA"
"EQ_VEGA"
"EQ_CURV"
"EQ_CURV"
"COMM_DELTA"
"COMM_DELTA"
"COMM_DELTA"
"COMM_DELTA"
"COMM_VEGA"
"COMM_VEGA"
"COMM_VEGA"
"COMM_VEGA"
"COMM_CURV"
"COMM_CURV"
"COMM_CURV"
"GIRR_DELTA"
"GIRR_DELTA"
"GIRR_DELTA"
"GIRR_VEGA"
"GIRR_VEGA"
"GIRR_VEGA"
"GIRR_CURV"
"GIRR_CURV"
"FX_DELTA"
"FX_DELTA"
"FX_VEGA"
⋮
Display some of the trades of the portfolio.
myFRTBSA.Portfolios(1).Trades(1)
ans = Trade with properties: TradeID: "EQD_a1" Variant: <missing> SensitivityID: "P1_EQD_a1" RiskType: "EQ_DELTA" Qualifier: "ISSUER A" Bucket: "1" Label1: <missing> Label2: "SPOT" Amount: 8250.00 AmountCurrency: "USD" AmountUSD: 8250.00 Label3: NaN EndDate: NaT CreditQuality: <missing> LongShortInd: <missing> CoveredBondInd: <missing> TrancheThickness: NaN
myFRTBSA.Portfolios(1).Trades(30)
ans = Trade with properties: TradeID: "FXV_b1" Variant: "Variant 1" SensitivityID: "P1_FXV_b1" RiskType: "FX_VEGA" Qualifier: "EURCLP" Bucket: <missing> Label1: "0.5" Label2: <missing> Amount: 175.00 AmountCurrency: "USD" AmountUSD: 175.00 Label3: NaN EndDate: NaT CreditQuality: <missing> LongShortInd: <missing> CoveredBondInd: <missing> TrancheThickness: NaN
myFRTBSA.Portfolios(1).Trades(60)
ans = Trade with properties: TradeID: "RRAO_a2" Variant: <missing> SensitivityID: "P1_RRAO_a2" RiskType: "RRAO_01_PERCENT" Qualifier: <missing> Bucket: <missing> Label1: <missing> Label2: <missing> Amount: 300000.00 AmountCurrency: "USD" AmountUSD: 300000.00 Label3: NaN EndDate: NaT CreditQuality: <missing> LongShortInd: <missing> CoveredBondInd: <missing> TrancheThickness: NaN
Compute DRC Charge
The DRC charge captures the risk of default of issuers of debt and equity instruments in the trading book. Use drc
to compute the DRC charge for each portfolio using the frtbsa
object.
DRCResults = drc(myFRTBSA)
DRCResults = drcResults with properties: NumPortfolios: 2.00 PortfolioIDs: [2×1 string] Regulation: "Basel_d491" DomesticCurrency: "USD" Charges: [2×1 double] ComponentResults: [2×1 frtbsa.drcPortfolioResults] ResultsTable: [2×4 table]
The Charge
output contains the DRC risk charge of the portfolios.
DRCResults.Charges
ans = 2×1
177008.51
51024.29
The ResultsTable
output contains the high-level risk DRC charge calculations of the portfolios.
DRCResults.ResultsTable
ans=2×4 table
PortfolioIDs Total NS SNC
____________ _________ ________ _________
"P1" 177008.51 20750.00 156258.51
"P2" 51024.29 20750.00 30274.29
The ComponentResults
output contains the detailed DRC risk charge information for a given portfolio. Examine the DRC risk charge for the first portfolio.
DRCResults.ComponentResults(1)
ans = drcPortfolioResults with properties: PortfolioID: "P1" Charge: 177008.51 ChargeByCreditClass: [2×2 table] IntrabucketCharges: [1×1 struct]
Display charges by credit class. Portfolio P1
has non-securitization and securitization non-CTP trades.
DRCResults.ComponentResults(1).ChargeByCreditClass
ans=2×2 table
CreditClass Charge
___________ _________
"NS" 20750.00
"SNC" 156258.51
Display the intrabucket charges for the non-securitization trades.
DRCResults.ComponentResults(1).IntrabucketCharges.NS
ans=2×4 table
Bucket NetLongJtd NetShortJdt Charge
____________ __________ ___________ ________
"CORPORATES" 12750.00 0.00 12750.00
"SOVEREIGNS" 8000.00 0.00 8000.00
Display the intrabucket charges for the securitization non-CTP trades.
DRCResults.ComponentResults(1).IntrabucketCharges.SNC
ans=1×9 table
Bucket NonSeniorLongJtd NonSeniorShortJtd SeniorLongJtd SeniorShortJtd NetLongJtd NetShortJtd HBR Charge
____________ ________________ _________________ _____________ ______________ __________ ___________ ____ _________
"CORPORATES" 0.00 0.00 746666.67 -300000.00 746666.67 300000.00 0.71 156258.51
Input Arguments
frtbsaObject
— FRTB-SA object
object
FRTB-SA object, specified as a frtbsa
object. You create a
frtbsa
object using frtbsa
.
Data Types: object
Output Arguments
DRCResults
— Default risk capital charge results
object
Default risk capital charge results, returned as a DRCResults
object. The DRCResults
object has the following properties:
NumPortfolios
— Number of portfolios whose default risk capital charges are contained in theDRCResults
object.Regulation
— Jurisdiction. The default is"Basel"
.DomesticCurrency
— Domestic currency. The default is"USD"
.Charges
—NumPortfolios
-by-1
array of default risk capital charges.PortfolioIDs
—NumPortfolios
-by-1
array of strings containing the portfolio IDs of each portfolio.ComponentResults
—NumPortfolios
-by-1
array offrtbsa.drcPortfolioResults
objects containing the calculation results for each portfolio. Thefrtbsa.drcPortfolioResults
object properties are:PortfolioIDs
— Scalar string indicating the ID of the portfolio.Charge
— Default risk capital charge of the portfolio.ChargeByCreditClass
— Table displaying the default risk capital charge calculations by credit class.IntrabucketCharges
— Table displaying the default risk capital charge intrabucket calculations.
ResultsTable
— Table displaying the high-level default risk capital calculation results for all portfolios.
More About
Default Risk Capital
Under the FRTB-SA framework, the default risk capital (DRC) covers potential losses from the default of an issuer or counterparty of debt or equity instruments held in the trading book.
DRC is intended to capture jump-to-default (JTD) risk that may not be captured by credit spread shocks under the sensitivities-based method (SBM). The instruments subject to DRC are:
Non-securitization portfolios. For more information, see Non-Securization Portfolio.
Securitization portfolio (non-correlation trading portfolio, or non-CTP).
DRC is calculated using a supervisory formula that considers the following factors:
Position Values — The current market value of each position in the trading book
Risk Weights — Prescribed risk weights based on the credit quality of the issuer (for debt) or the issuer and the market capitalization (for equity)
Maturities — The effective maturity of the positions, which influences the potential exposure to default risk
Correlations — Prescribed correlations between issuers within the same bucket (a grouping of issuers based on similar characteristics) and across different buckets
Non-Securization Portfolio
Under the FRTB-SA framework, a non-securization portfolio consists of other types of financial instruments and exposures within the trading book, such as equities, bonds, commodities, foreign exchange, and derivatives that are not tied to a securitization structure.
The FRTB-SA provides a framework for calculating capital requirements for these non-securitization portfolios based on various risk factors, including:
Default Risk — The risk of loss due to an obligor's failure to meet its payment obligations
Credit Spread Risk — The risk of loss due to changes in the credit spread of an issuer or counterparty
Market Risk — The risk of loss due to changes in market variables, such as interest rates, equity prices, commodity prices, and foreign exchange rates
Residual Risk — Any additional risk not captured by the standardized risk factor sensitivities
For non-securitization portfolios, banks must calculate the capital charge by assessing the sensitivities of the portfolio to these risk factors and applying the appropriate risk weights as specified by the FRTB-SA regulations. The resulting capital charges are designed to ensure that banks hold sufficient capital to protect against potential losses from their trading activities.
References
[1] Bank for International Settlements. "MAR21 — Standardised Approach: Sensitivities-Based Method." March 2020. https://www.bis.org/basel_framework/chapter/MAR/21.htm.
[2] Bank for International Settlements. "MAR22 — Standardised Approach: Default Risk Capital Requirement." March 2020. https://www.bis.org/basel_framework/chapter/MAR/22.htm.
[3] Bank for International Settlements. "MAR23 — Standardised Approach: Residual Risk Add-On." March 2020. https://www.bis.org/basel_framework/chapter/MAR/23.htm.
[4] Bank for International Settlements. "CRE42 — Securitisation: External-Ratings-Based Approach (SEC-ERBA)." January 2023. https://www.bis.org/basel_framework/chapter/CRE/42.htm.
[5] Bank for International Settlements. "Basel Committee on Banking Supervision: Minimum Capital Requirements for Market Risk"." January 2019. https://www.bis.org/bcbs/publ/d457.pdf.
Version History
Introduced in R2024b
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