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

A risk manager reviews a desk with non-modellable risk factors (NMRFs). Under FRTB, how is the capital for NMRFs determined?

Non-modellable risk factors are capitalised through a separate stress scenario capital requirement, calibrated to a period of stress and reflecting the factor's liquidity horizon. They are not in the expected shortfall model, and passing P&L attribution does not remove the charge.

  1. AIncluded in the expected shortfall calculation with a 10-day liquidity horizon
  2. BCapitalised using the stressed expected shortfall of modellable factors only, scaled by a multiplier
  3. CCapitalised through the stress scenario capital requirement (SES), calibrated to the stress period with at least the liquidity horizon of the factorCorrect
  4. DExcluded from capital if the desk passes P&L attribution

Explanation

NMRFs are capitalised separately through the SES add-on, using stress scenarios calibrated to a period of significant stress and reflecting at least a 10-day horizon and the factor's liquidity horizon. Passing PLA does not exempt them. They are not included in the ES model.

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