Market risk

S. M. Mohaimen Roll: 136 Serial: 15 MBA 13TH Batch Department of Banking University of Dhaka

Market risk defined

Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices

Scope and coverage of the capital charge

On balance sheet assets held in the trading book are subject to only market risk capital requirements and will not be subject to credit risk capital requirement.

On balance sheet assets funded in foreign currency will be subject to both credit and market risk capital requirement.

Derivatives, unless they are contracted to hedge positions in the banking book will be subject to both credit and market risk capital requirement.

Repurchase/reverse repurchase, securities lending held in trading book will be subject to both credit and market risk capital requirement.

Capital charge for specific risk

Capital charge weight for specific risk

Capital charges for general market risk

Maturity Method

In the maturity method, long or short positions in debt securities and other sources of interest rate exposures, including derivative instruments, are slotted into a maturity ladder comprising 13 time-bands (or 15 time-bands in case of low coupon instruments).

Duration Method

Under the duration method, banks may use a more accurate method

of measuring all of their general market risk by calculating the interest sensitivity of
each position separately.

Maturity Method - Time-bands and Weights

Duration Method - Time-bands and Assumed Changes in Yield

Horizontal disallowances

Calculation of general market risk