frtbsa

Create frtbsa object to support ISDA FRTB-SA workflows for calculating capital market risk charge

Since R2024b

Description

Create a frtbsa object using this workflow:

1. Create a FRTB-SA CRIF file.

   The ISDA^® FRTB-SA Common Risk Interchange Format (CRIF) is a standardized format developed by the International Swaps and Derivatives Association (ISDA) for reporting capital market risk charges under the Standardized Approach for Fundamental Review of the Trading Book (FRTB-SA) framework. For more information on creating an ISDA FRTB-SA CRIF file, see ISDA FRTB-SA CRIF File Specifications. FRTB-SA functionality meets ISDA benchmarks for use in the frtbsa object.

2. Create a frtbsa object.

   Use frtbsa to create a frtbsa object.

3. Use frtbsa object functions.

   Use the following functions to calculate total capital market risk, sensitivity-based method (SBM) charge, default risk capital (DRC) charge, and residual risk add-on (RRAO) charge results for each portfolio:

   • charge

   • sbm

   • drc

   • rrao

   Use the following functions to visualize total capital market risk, sensitivity-based method (SBM) charge, default risk capital (DRC) charge, and residual risk add-on (RRAO) charge results for each portfolio:

   • chargeChart

   • drcChart

   • rraoChart

   • sbmChart

For more information on this workflow, see ISDA FRTB-SA Workflows and for examples, see Compute Capital Risk Charge Using FRTB-SA Framework with Basel Regulations and Compute Market Risk Capital Charge Using FRTB-SA Framework with CRR2.

Creation

Syntax

myFRTBSA = frtbsa(FRTBSACRIF)

myFRTBSA = frtbsa(___,Name=Value)

Description

myFRTBSA = frtbsa(FRTBSACRIF) creates a frtbsa object and sets the properties. The frtbsa object provides an object-based framework that supports Basel-compliant, International Swaps and Derivatives Association (ISDA) workflows for calculating capital market risk charge.

myFRTBSA = frtbsa(___,Name=Value) creates a frtbsa object and sets the optional name-value arguments for DRCValuationDate, Regulation, and NumDaysYear. The DRCValuationDate and NumDaysYear properties are required for drc calculation.

Input Arguments

FRTBSACRIF — ISDA FRTB-SA Common Risk Interchange Format (CRIF) data

string with filename for ISDA FRTB-SA Common Risk Interchange Format (CRIF) data

ISDA FRTB-SA Common Risk Interchange Format (CRIF) data, specified as a string.

The ISDA FRTB-SA CRIF file is designed to facilitate the exchange of risk factor information between market participants and regulatory authorities. Under the FRTB regulations, banks are required to report their trading book risk factors and sensitivities to these risk factors to their regulators. The CRIF file is a structured data file that includes all the necessary details to perform the required calculations for capital adequacy under FRTB-SA. ISDA CRIF is a proprietary model developed by the International Swaps and Derivatives Association, Inc. (ISDA). You can get a license to use CRIF from ISDA by contacting them at [e-mail].

The ISDA FRTB-SA CRIF file typically includes information such as:

• Risk factor categories — This data includes types of risk factors, such as interest rates, credit spreads, equity prices, commodity prices, foreign exchange rates, and so on.

• Risk factor qualifiers — This data includes additional details that further specify the risk factor, like maturity buckets, currency, country, and so on.

• Risk factor sensitivities — This data includes information related to the sensitivities of the trading book positions to the various risk factors.

• Risk weights and correlations — This data includes information required to apply the standardized risk weights and correlations as prescribed by the FRTB-SA rules.

• Aggregated risk data — This data contains aggregated risk data, such as the default risk charge (DRC) and the residual risk add-on (RRAO).

The ISDA FRTB-SA CRIF file is based on industry-standard data formats, such as extensible markup language (XML) or comma-separated values (CSV). It follows a predefined schema that specifies the structure and data elements required for reporting market capital risk under the FRTB-SA framework.

By using the ISDA FRTB-SA CRIF file, market participants and regulatory authorities can efficiently exchange and analyze counterparty capital market risk information, enabling better risk management and regulatory compliance.

For more information on creating an ISDA FRTB-SA CRIF file, see ISDA FRTB-SA CRIF File Specifications.

Data Types: string

Name-Value Arguments

Specify required and optional pairs of arguments as Name1=Value1,...,NameN=ValueN, where Name is the argument name and Value is the corresponding value. Name-value arguments must appear after other arguments, but the order of the pairs does not matter.

Example: myFrtbsa = frtbsa("FRTB_CRIF.xlsx",DRCValuationDate = datetime(2023,9,21),Regulation = "CRR2",NumDaysYear = 362)

DRCValuationDate — Reference date for DRC calculations

scalar datetime

Reference date for DRC calculations, specified as a scalar datetime.

Note

DRCValuationDate is a required name-value argument for DRC calculations.

Data Types: datetime

Regulation — Regulatory jurisdiction

"Basel" (default) | scalar string with value "CRR2"

Regulatory jurisdiction, specified as a scalar string with one of the following values:

• "Basel" (default) — This jurisdiction serves as the global regulatory framework for capital adequacy, liquidity, and risk management. For more information, see Basel Regulation.

• "CRR2" — In addition to the Basel regulation, CRR2 includes additional requirements for market risk, counterparty credit risk, and capital buffers specific to the EU. For more information, see CRR2 Regulation.

For an example of using a frtbsa object with CRR2 regulations, see Compute Market Risk Capital Charge Using FRTB-SA Framework with CRR2.

Note

The FRTB-SA CRIF file needs to align with the Regulation that you specify. Even if the trades are the same, the buckets assigned to those trades differ across regulations.

Data Types: string

NumDaysYear — Number of days in year to compute maturity scaling factor for DRC calculations

365 days (default) | scalar integer

Number of days in a year to compute maturity scaling factor for DRC calculations, specified as a scalar integer.

Data Types: double

Output Arguments

myFRTBSA — Framework for calculating capital market risk charge

frtbsa object

Framework for calculating capital market risk charge, returned as a frtbsa object.

Properties

CRIF — ISDA FRTB-SA CRIF data

Read-only: CRIF data

This property is read-only.

ISDA FRTB-SA CRIF data, returned as a table.

Data Types: table

NumPortfolios — Number of portfolios

Read-only: numeric

This property is read-only.

Number of portfolios, returned as a scalar numeric.

Data Types: double

Portfolios — Portfolio objects

Read-only: vector of objects

This property is read-only.

Portfolio objects, returned as a NumPortfolios-by-1 vector of objects.

Data Types: object

PortfolioIDs — Portfolio IDs

Read-only: string vector

This property is read-only.

Portfolio IDs, returned as a NumPortfolios-by-1 string vector.

Data Types: string

Regulation — Indicator of regulatory jurisdiction

Read-only: "Basel" (default) | scalar string with value "CRR2"

This property is read-only.

Indicator of regulatory jurisdiction, returned as scalar string.

Data Types: string

DomesticCurrency — Indicator for domestic currency

Read-only: "USD" (default) | string

This property is read-only.

Indicator for domestic currency, returned as a scalar string for the three-letter ISO currency code.

Data Types: string

DRCValuationDate — Reference date for DRC calculations

Read-only: scalar datetime

This property is read-only.

Reference date for DRC calculations, returned as a scalar datetime.

Note

DRCValuationDate is a required property for DRC calculations.

Data Types: datetime

NumDaysYear — Number of days in year to compute maturity scaling factor for DRC calculations

Read-only: 365 days (default) | scalar integer

This property is read-only.

Number of days in a year to compute maturity scaling factor for DRC calculations, returned as a scalar integer.

Data Types: double

Object Functions

charge	Calculate total capital market risk charge results for each portfolio
sbm	Calculate sensitivity-based method (SBM) charge results for each portfolio
drc	Calculate default risk capital (DRC) charge results for each portfolio
rrao	Calculate residual risk add-on (RRAO) charge results for each portfolio
chargeChart	Generate chart of market risk capital charge values
drcChart	Generate chart of DRC charge values
rraoChart	Generate chart of RRAO charge values
sbmChart	Generate chart of SBM charge values

Examples

Create frtbsa Object Using FRTB-SA CRIF File

Use a ISDA® FRTB-SA CRIF file to create a frtbsa object that supports workflows for calculating capital market risk charge.

Create frtbsa Object

FRTB-SA (Standardized Approach for Fundamental Review of Trading Book) is a Basel Committee on Banking Supervision framework for calculating market capital risk requirements that is based on a set of standardized risk factors.

Use bank format to display numeric data using two decimal places.

format bank

Define the ISDA® FRTB-SA CRIF file.

FRTBSACRIF = "FRTBSA_CRIF.csv";

Define 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"
    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

More About

FRTB-SA Method

FRTB-SA (Standardized Approach for Counterparty Credit Risk) is a Basel Committee on Banking Supervision framework for calculating market capital risk requirements that is based on a set of standardized risk factors.

These risk factors are divided into three categories or components:

• The capital requirement under the sensitivities-based method (SBM) that results in the sensitivity-based risk charge. Banks must calculate capital charges for various risk factors across different asset classes, such as interest rate risk, credit spread risk, equity risk, commodity risk, and foreign exchange risk. SBM involves aggregating sensitivities (price risk factors) to these risk factors and applying prescribed risk weights. For more information, see Sensitivity-Based Method and Sensitvity-Based Method Components.

• The default risk capital requirement (DRC) that results in the default risk charge. DRC is designed to capture the risk of default of issuers of debt and equity instruments in the trading book. For more information, see Default Risk Capital.

• The residual risk add-on (RRAO) capital requirement that results in the residual risk add-on charge. RRAO accounts for model risks and risks not captured by the SBM or DRC, such as correlation trading and other risks associated with complex instruments. For more information, see Residual Risk Add-on Capital.

The standard approach for capital requirements is the aggregation of the above three components or charges:

Total risk charge = sensitivity-based risk charge + default risk charge + residual risk add-on charge

A risk charge is the amount of capital that a bank should hold because of the risks it takes. The FRTB-SA aims to provide a more consistent and standardized framework for market capital risk, ensuring that banks hold sufficient capital to withstand market shocks and contribute to a more stable financial system.

Basel Regulation

The Basel regulation (d491) is the final standard for the Fundamental Review of the Trading Book (FRTB), specifically focusing on the Standardized Approach (SA) for market risk. Basel aims to improve the robustness and risk sensitivity of the market risk capital framework, ensuring that banks maintain adequate capital reserves to cover potential losses arising from market fluctuations. It provides a more consistent and comparable method for assessing market risk across global financial institutions.

The key aspects of FRTB-SA under Basel are:

• Risk factor categorization — The framework categorizes risk factors into different asset classes, such as interest rate, equity, credit spread, commodity, and foreign exchange risks.

• Sensitivities-base approach — Banks are required to calculate capital charges based on sensitivities to risk factors, including:

  • Delta risk — Sensitivity to changes in the price of underlying assets.

  • Vega risk — Sensitivity to changes in the volatility of risk factors.

  • Curvature risk — Captures the non-linear price changes with respect to large movements in risk factors.

• Liquidity horizons — Different liquidity horizons are assigned to various risk factors, reflecting the time needed to exit positions without adversely affecting market prices.

• Default risk charge — A separate capital charge is calculated for default risk, accounting for the potential loss from defaults and credit rating migrations.

• Non-modellable risk factors — Additional capital charges are imposed on risk factors that lack sufficient data to be reliably modeled.

• Calibration and risk weights — The approach includes specific calibration of risk weights and correlations across different risk factors and buckets, based on historical data and stress scenarios.

CRR2 Regulation

CRR2 (Capital Requirements Regulation 2) is part of the European Union's legislative package aimed at implementing Basel III reforms, which include the Fundamental Review of the Trading Book (FRTB). The adoption of CRR2 for FRTB-SA is intended to improve the resilience and stability of the financial system by ensuring that banks maintain sufficient capital buffers to absorb losses from market risk exposures. The regulation provides a more consistent and transparent framework for market risk assessment across EU financial institutions.

The key aspects of FRTB-SA under CRR2 are:

• Risk sensitivity — The SA is designed to be more risk-sensitive than previous approaches, capturing the varying risk factors across different asset classes.

• Risk classes and buckets — The SA divides financial instruments into different risk classes (for example, interest rate, equity, credit spread) and further into risk buckets, each with specified risk weights.

• Delta, vega, and curvature risks — The SA requires banks to calculate capital charges for delta (sensitivity to price changes), vega (sensitivity to volatility changes), and curvature risks (non-linear risks).

• Liquidity horizons — Different liquidity horizons are assigned to various risk factors, reflecting the time required to exit positions without significantly impacting market prices.

• Default risk charge — A separate charge is calculated for default risk, which considers the likelihood of default and the potential loss given default.

• Non-modellable risk factors — Risk factors that do not have sufficient historical data to be reliably modeled are subject to additional capital charges.

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 — Securitization: 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

R2025a: Support for New Value for Regulation

The frtbsa object supports a new value for the input argument Regulation where you can specify CRR2 as a regulatory jurisdiction.

R2025a: Support for Chart Functions

The frtbsa object supports the following chart functions: chargeChart, drcChart, rraoChart, and sbmChart.