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

Which statement best describes how risk weights are applied in the FRTB SBM delta charge?

Under the SBM, banks net sensitivities to each prescribed risk factor and multiply them by supervisor-set risk weights. The weighted sensitivities are then aggregated within buckets and across buckets. Internal estimation of weights is not permitted, as that belongs to the internal models approach.

  1. AEach bank estimates its own risk weights using internal 10-day ES models
  2. BNet sensitivities to each prescribed risk factor are multiplied by supervisor-set risk weights to obtain weighted sensitivitiesCorrect
  3. CRisk weights are applied only to the aggregate portfolio market value, not to sensitivities
  4. DRisk weights are applied after aggregating across all risk classes into one number

Explanation

Banks compute net sensitivities to regulator-defined risk factors and multiply by prescribed risk weights, producing weighted sensitivities that are then aggregated within buckets, across buckets, and then across risk classes. Internal estimation belongs to the internal models approach.

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