EBA · 2020_5635 Rejected question

Application of the formula for the determination of the risk weight for a specific vega risk factor k

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
325 ax, para. 3
Topic
Market risk
Submitted by
Other
Submitted
2020-11-30
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Question

Is it permitted to use the formula proposed in the original Basel text (MAR 21.92) to calculate the risk weight for a specific vega risk factor k, in deviation from Article 325ax Paragraph 3 CRR?

Background

In a comparison of the original Basel text (MAR 21.92) and Article 325ax (3) CRR, we noticed that the formula for calculating the risk weight for a specific vega risk factor k has been extended by the multiplier "value of risk factor k". In Article 325ax (2) CRR, the risk weight is defined as a share of the current value of a certain vega risk factor k, which represents the implied volatility of the underlying asset according to Section 3. Nevertheless it remains unclear what exactly is meant by "value of risk factor k". The addition of the multiplier "value of risk factor k” to the formula as described in Article 325ax (3) CRR II means that ultimately, in the calculation of the weighted net sensitivities (WS_k) under Article 325f(6) CRR II, a share (in most cases 100%) of "value of risk factor k” is multiplied by s_k (the risk factor). Accordingly, we assume that it is correct to apply the formula according to the Basel text, the result of which is a classical risk weight.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2020_5635

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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