Technical Appendix To: From SA-CCR to RSA-CCR: Making SA-CCR Self-Consistent and Appropriately Risk-Sensitive by Cashflow Decomposition in a 3-Factor Gaussian Market Model

20 Pages Posted: 25 Feb 2019

See all articles by Mourad Berrahoui

Mourad Berrahoui

Lloyds Banking Group

Othmane Islah

Lloyds Banking Group; Quantuply Ltd

Chris Kenyon

MUFG Securities EMEA plc

Date Written: February 12, 2019

Abstract

The full-text version of this paper can be found at: https://ssrn.com/abstract=3329538.

SA-CCR has major issues including: lack of self-consistency for linear trades; lack of appropriate risk sensitivity (zero positions can have material add-ons; moneyness is ignored); dependence on economically-equivalent confirmations. We show that SA-CCR is, by re-construction, based on a 3-factor Gaussian Market Model with particular calibration to volatility and inter-bucket correlation structure. Hence we proposed RSA-CCR (Berrahoui, Islah and Kenyon, 2019) based on cashflow decomposition and this 3-factor Gaussian Market Model. RSA-CCR solves the issues with SA-CCR for linear trades and is calibrated to SA-CCR apart from avoiding SA-CCR's issues.

This Technical appendix provides background material, proofs and technical details behind RSA-CCR not present in the source paper (Berrahoui, Islah and Kenyon 2019). There is some duplication to make this appendix more readable.

Keywords: Capital, Regulation, SA-CCR, Counterparty Credit Risk, Basel III

JEL Classification: C60, K23, G01, G10, G18, G38

Suggested Citation

Berrahoui, Mourad and Islah, Othmane and Kenyon, Chris, Technical Appendix To: From SA-CCR to RSA-CCR: Making SA-CCR Self-Consistent and Appropriately Risk-Sensitive by Cashflow Decomposition in a 3-Factor Gaussian Market Model (February 12, 2019). Available at SSRN: https://ssrn.com/abstract=3329545 or http://dx.doi.org/10.2139/ssrn.3329545

Mourad Berrahoui

Lloyds Banking Group ( email )

10 Gresham Street
London, EC2V 7AE
United Kingdom

Othmane Islah

Lloyds Banking Group ( email )

10 Gresham Street
London, EC2V 7AE
United Kingdom

Quantuply Ltd ( email )

London
United Kingdom

Chris Kenyon (Contact Author)

MUFG Securities EMEA plc ( email )

25 Ropemaker St
London, EC2Y 9AJ
United Kingdom

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