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FRM Part II · FRM Exam Part II · Fundamental Review of the Trading Book

A bank's FRTB internal model calculates the unconstrained expected shortfall for the full set of risk factors using the current period of stress. The reduced set of risk factors yields an ES of 80 million (current) and 100 million (stress period), and the full set under current conditions yields 120 million. What is the stressed-period ES for the full portfolio that is used for regulatory capital?

The stressed ES is 150 million. FRTB takes the reduced-set ES calibrated to the stress period (100 million) and scales it by the ratio of full-set to reduced-set current ES (120/80 = 1.5). The result is 100 × 1.5 = 150 million.

  1. A150 millionCorrect
  2. B96 million
  3. C120 million
  4. D100 million

Explanation

FRTB scales: ES = ES_reduced,stress × ES_full,current / ES_reduced,current = 100 × 120 / 80 = 150 million. Option 96 inverts the ratio (100 × 80/120 ... incorrectly gives 66.7; 96 results from 120×80/100). Using 120 or 100 ignores the scaling adjustment.

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