Fundamental Review of the Trading book

Course Content: The aim of this section is to review the main changes associated with the introduction of the Fundamental Review of the Trading Book. We start by answering a series of general questions covering various angles of this new market risk paradigm. Subsequently, we enumerate the key elements involved in the FRTB. The books: In order to help us appreciate the new rules, in this session we make an explicit comparison of the “before” and “after” situation in both the Trading Book and the Banking Book, with a particular interest to delineate the boundary between them. The approaches: This section develops the necessary tools to understand the specific changes in the standardized approach and the internal model approach for the FRTB. Counterparty Credit Risk: In this final segment, all the previous developments are put together to describe what the role of counterparty risk is in this new regulatory framework. In particular we discuss the practical issues associated with credit valuation adjustment (CVA) and capital valuation adjustment (KVA).