FRTB and Fat Tails

21 Pages Posted: 15 Oct 2020 Last revised: 11 Nov 2020

See all articles by Thomas Roos

Thomas Roos

Quantitative Financial Consulting

Date Written: October 9, 2020

Abstract

We calculate the probability of returns exceeding a multiple of Expected Shortfall for fat-tailed portfolios. Our results show that, taken in isolation, the Basel 3 FRTB Market Risk capital requirements are insufficient to prevent a large number of insolvencies. The impact of applying a cutoff to the tail distribution is also examined.

Keywords: FRTB, Market Risk, Fat Tails, Power Law, Pareto, Basel

JEL Classification: G21,G28

Suggested Citation

Roos, Thomas, FRTB and Fat Tails (October 9, 2020). Available at SSRN: https://ssrn.com/abstract=3708061 or http://dx.doi.org/10.2139/ssrn.3708061

Thomas Roos (Contact Author)

Quantitative Financial Consulting ( email )

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
87
Abstract Views
296
rank
328,268
PlumX Metrics