EBA · 2025_7650 Rejected question

Foreign Exchange Vega Risk Factors Definition

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
383d, para. 2
Topic
Market risk
Submitted by
Credit institution
Submitted
2025-12-09
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Question

Shall the foreign exchange vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange volatility be the implied volatilities of foreign exchange rates between the contractual currency pairs (i.e., no triangulation with respect to the institution’s reporting currency is required)?

Background

Article 383d(2) requires that " The foreign exchange vega risk factors to be applied by institutions to instruments in the CVA portfolio sensitive to foreign exchange volatility shall be the implied volatilities of foreign exchange rates between the currency pairs referred to in paragraph 1. ", where currency pairs referred to in paragraph 1 are " foreign exchange rates between the currency in which an instrument is denominated and the institution’s reporting currency... ". The requirement to "triangulate" FX vega sensitivities is not in line with market standards and FRTB-related Article 325q(2) where all currency pairs are allowed " The foreign exchange vega risk factors to be applied by institutions to options with underlyings that are sensitive to foreign exchange shall be the implied volatilities of exchange rates between currency pairs ".
No answer published yet.

Original source: European Banking Authority, Q&A ID 2025_7650

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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