Sensitivities-Based Method: Definition of Curvature Risk Buckets, Risk Weights and Correlations

No: 44047144

Date(g): 27/12/2022 | Date(h): 4/6/1444

Status: In-Force

7.96	[7.97] to [7.101] set out buckets, risk weights and correlation parameters to calculate curvature risk capital requirement as set out in [7.5].
7.97	The delta buckets are replicated for the calculation of curvature risk capital requirement, unless specified otherwise in the preceding paragraphs within [7.8] to [7.89].
7.98	For calculating the net curvature risk capital requirement CVR_k for risk factor k for FX and equity risk classes, the curvature risk weight, which is the size of a shock to the given risk factor, is a relative shift equal to the respective delta risk weight. For FX curvature, for options that do not reference a bank’s reporting currency (or base currency as set out in [7.14](b)) as an underlying, net curvature risk charges (CVR_k⁺ and CVR_k^- ) may be divided by a scalar of 1.5. Alternatively, and subject to SAMA approval, a bank may apply the scalar of 1.5 consistently to all FX instruments provided curvature sensitivities are calculated for all currencies, including sensitivities determined by shocking the reporting currency (or base currency where used) relative to all other currencies.
7.99	For calculating the net curvature risk capital requirement CVR_k for curvature risk factor k for GIRR, CSR and commodity risk classes, the curvature risk weight is the parallel shift of all the tenors for each curve based on the highest prescribed delta risk weight for each risk class. For example, in the case of GIRR the risk weight assigned to 0.25-year tenor (ie the most punitive tenor risk weight) is applied to all the tenors simultaneously for each risk-free yield curve (consistent with a “translation”, or “parallel shift” risk calculation).
7.100	For aggregating curvature risk positions within a bucket, the curvature risk correlations p_kl are determined by squaring the corresponding delta correlation parameters p_kl except for CSR non-securitisations and CSR securitisations (CTP). In applying the high and low correlations scenario set out in [7.6], the curvature risk capital requirements are calculated by applying the curvature correlation parameters p_kl determined in this paragraph.
	(1)	For CSR non-securitisations and CSR securitisations (CTP), consistent with [7.9] which defines a bucket along one dimension (ie the relevant credit spread curve), the correlation parameter p_kl as defined in [7.54] and [7.55] is not applicable to the curvature risk capital requirement calculation. Thus, the correlation parameter is determined by whether the two names of weighted sensitivities are the same. In the formula in [7.54] and [7.55], the correlation parameters p_kl^(basis) and p_kl^(tenor) need not apply and only correlation parameter p_kl ^(name) applies between two weighted sensitivities within the same bucket. This correlation parameter should be squared.
[7.100] states that, for curvature risk of CSR non-securitisation, the correlation parameters p_kl^(basis) and p_kl^(tenor) need not apply and only correlation parameter p_kl^(name) applies between two sensitivities WS_k and WS_l within the same bucket.
7.101	For aggregating curvature risk positions across buckets, the curvature risk correlations γ_bc are determined by squaring the corresponding delta correlation parameters γ_bc. For instance, when aggregating CVR_EUR and CVR_USD for the GIRR, the correlation should be 50%2 = 25% . In applying the high and low correlations scenario set out in [7.6], the curvature risk capital requirements are calculated by applying the curvature correlation parameters γ_bc, (ie the square of the corresponding delta correlation parameter).