Main Concepts of Default Risk Capital Requirements
Effective from Dec 28 2022 - Dec 31 2022
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| 8.1 | The default risk capital (DRC) requirement is intended to capture jump-to-default (JTD) risk that may not be captured by credit spread shocks under the sensitivities- based method. DRC requirements provide some limited hedging recognition. In this chapter offsetting refers to the netting of exposures to the same obligor (where a short exposure may be subtracted in full from a long exposure) and hedging refers to the application of a partial hedge benefit from the short exposures (where the risk of long and short exposures in distinct obligors do not fully offset due to basis or correlation risks). | |||