EBA · 2021_6122 Final Q&A

Gamma correlations regarding curvature risk in low and high scenario

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
325h
Topic
Market risk
Submitted by
Consultancy firm
Submitted
2021-07-29
Answered
2022-02-11
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

To calculate the gamma correlation to be used for the curvature risk in the low and high scenarios, should institutions at first square the gamma correlation used for the delta risk and then apply the formulas provided for in Article 325h CRR or vice versa?

Background

Article 325ay(5) reports that the curvature risk correlations shall be the square of corresponding delta risk correlations ρ_kl and γ_bc referred to in Subsection 1.  Article 325h Regulation (EU) No 575/2013 (CRR) - as amended by Regulation (EU) No 2019/876 and Commission delegated Regulation (EU) 2021/424 - reports the formulas to apply at the rho and gamma correlations to obtain the rho and gamma correlations in the low and high scenarios.  The legal text does not define which of the two Articles should be applied first.

Answer

The correlation parameters ρkl and γbc to be used in the calculation of the risk-class specific curvature own funds requirements for the low and high correlations scenarios of Article 325h(2) Regulation (EU) No 575/2013 as amended (CRR), shall be the corresponding delta risk correlations ρkl and γbc after they are squared following Article 325ay(5) CRR.

Original source: European Banking Authority, Q&A ID 2021_6122

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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