Skip to content

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

Under the FRTB sensitivities-based method, the curvature risk charge is designed to capture which risk?

The curvature charge captures the incremental loss from large shocks that the linear delta approximation misses, effectively the gamma or nonlinearity risk of option positions. It is not a default risk measure or a liquidity measure, which are treated by other parts of the framework.

  1. ADefault risk of the issuer of a bond
  2. BGamma-type risk not captured by the delta approximation for large price shocks, especially for optionsCorrect
  3. CThe risk that the bank cannot exit positions in stressed markets
  4. DBasis risk between the cash and futures markets only

Explanation

Curvature measures the loss from an up or down shock beyond what a linear delta estimate gives, so it captures the nonlinearity (gamma) of option-like positions. Default risk is a separate charge, and liquidity is handled by liquidity horizons in the IMA.

Did you get it right without looking?

One question tells you little. A timed set on Fundamental Review of the Trading Book shows your real accuracy, how long you take and where you lose marks.

Practise Fundamental Review of the Trading BookFree diagnostic mock

More Fundamental Review of the Trading Book questions