Precise market risk modeling for regulatory excellence under FRTB
FRTB Market Risk Modeling – Sensitivity-Based Approach, Risk Classes & Risk Factor Modeling
The Fundamental Review of the Trading Book requires fundamentally new market risk modeling: The sensitivity-based approach (SbA) calculates delta, vega and curvature risks across seven risk classes – GIRR, CSR (non-sec, sec CTP, sec non-CTP), equity, FX and commodity. We support banks in the methodological design, risk factor modeling and operational implementation of these requirements.
- ✓Sensitivity-based approach: Delta, vega and curvature calculation per FRTB standards
- ✓Full coverage of all risk classes – GIRR, CSR, equity, FX, commodity
- ✓Risk factor modeling with regulatory-compliant simulation methods
- ✓Expected Shortfall calculation and stress testing per Basel III requirements
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Market Risk Modeling Under FRTB – From Sensitivity Calculation to Capital Charges
Our FRTB Market Risk Modeling Expertise
- Deep expertise in FRTB market risk modeling and regulatory-compliant capital calculation
- Proven methodology for Expected Shortfall calculation, risk factor calibration and model validation
- End-to-end approach from gap analysis through SbA implementation to ongoing model monitoring
- Hands-on experience with desk-level approval, PnL attribution and backtesting processes
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Market Risk Modeling Excellence in Focus
Effective FRTB market risk modeling requires more than meeting minimum regulatory standards. A well-defined risk factor taxonomy, accurate sensitivity calculation and consistent aggregation create lasting capital advantages and audit resilience.
ADVISORI in Numbers
11+
Years of Experience
120+
Employees
520+
Projects
We develop a methodologically sound and regulatory-compliant market risk modeling strategy that systematically meets all FRTB requirements for sensitivity calculation, risk factor modeling and capital charges.
Our Approach:
Analysis of your current market risk architecture and FRTB readiness assessment across all risk classes
Definition of risk factor taxonomy for GIRR, CSR, equity, FX and commodity
Setup of SbA calculation methodology: Delta, vega, curvature per risk factor and bucket
Integration of residual risk add-on, default risk charge and correlation scenarios
Validation, backtesting and continuous calibration of model parameters
"Structured market risk modeling under FRTB is the key to regulatory-compliant capital management. ADVISORI supported us in implementing the sensitivity-based approach with methodological rigor."
Melanie Düring
Head of Risk Management
Our Services
We offer you tailored solutions for your digital transformation
Sensitivity-Based Approach (SbA) – Delta, Vega, Curvature
Design and implementation of the complete SbA calculation chain: Derivation of sensitivities, assignment to risk factors and buckets, aggregation under three correlation scenarios.
Risk Class Modeling – GIRR, CSR, Equity, FX, Commodity
For each of the seven FRTB risk classes, we define the risk factor structure, calibrate risk weights and implement regulatory correlation matrices.
Risk Factor Modeling and Simulation Methods
Modeling of modellable and non-modellable risk factors (NMRF), selection of suitable simulation methods and calibration to regulatory stress periods.
Expected Shortfall and Capital Charges
Calculation of Expected Shortfall across various liquidity horizons, integration into capital planning and ensuring SA-IMA consistency.
Residual Risk Add-On and Default Risk Charge
Implementation of RRAO for exotic underlyings and DRC for jump-to-default risks as supplementary capital components.
Model Validation, Backtesting and Re-Calibration
Ongoing validation processes with profit-and-loss attribution, desk-level backtesting and regular re-calibration of model parameters.
Our Competencies in Fundamental Review of the Trading Book (FRTB)
Choose the area that fits your requirements
Expected Shortfall Under FRTB – Calculation, Validation and Implementation
Expected Shortfall (ES) is the central risk measure for market risk capital requirements under the Fundamental Review of the Trading Book (FRTB). It replaces Value at Risk and measures the average loss in the tail of the loss distribution — at the 97.5% confidence level over a 250-day stress period. ADVISORI guides banks through implementation: from ES calculation through classification of modellable risk factors to regulatory validation.
FRTB Backtesting Requirements — Model Validation Standards for Market Risk
FRTB Backtesting Requirements demand precise implementation of Basel III model validation with specific backtesting performance requirements and validation procedures. As a leading consulting firm, we develop tailored RegTech solutions for intelligent backtesting compliance, automated model performance monitoring, and strategic validation optimization with full IP protection.
FRTB Boundary Trading Banking Book
The correct delineation between the trading book and banking book is critical for FRTB compliance and capital optimization. Together with you, we develop solid boundary management frameworks for precise classification and efficient management.
FRTB Credit Valuation Adjustment
FRTB Credit Valuation Adjustment presents new challenges for capital calculation and risk management. Together with you, we develop comprehensive CVA frameworks for precise capital calculation, effective hedging, and sustainable compliance excellence.
FRTB Data Management
The Fundamental Review of the Trading Book demands comprehensive market data, demonstrable risk factor modellability and audit-proof data governance. We build the data infrastructure your trading book needs — from real price observation pipelines and NMRF minimisation to automated data quality assurance.
FRTB German Implementation
The Fundamental Review of the Trading Book presents German banks with specific challenges. We develop tailored implementation strategies that meet BaFin requirements while accounting for the particularities of the German banking market.
FRTB Implementation
Navigate the complex implementation of the Fundamental Review of the Trading Book with our comprehensive implementation support. We guide you through the entire process – from the initial assessment and gap analysis through concept development and system adaptation to full integration into your trading and risk management systems, including model adjustment, data infrastructure and process optimisation.
FRTB Implementation Strategy: Approach Selection, Capital Optimization & Phased Rollout
FRTB Implementation Strategy requires precise implementation of the Basel III Fundamental Review of the Trading Book with specific market risk capital requirements and supervisory validation. As a leading AI consultancy, we develop tailored RegTech solutions for intelligent FRTB compliance, automated trading book separation and strategic market risk optimization with full IP protection.
FRTB Internal Models Approach (IMA) — Requirements, Approval and Implementation
The FRTB Internal Models Approach (IMA) allows banks to use their own risk models for market risk capital calculations — provided they meet strict supervisory requirements for Expected Shortfall, backtesting and P&L attribution. As specialist FRTB consultants, ADVISORI supports institutions with IMA approval, model validation and ongoing compliance.
FRTB Non-Modellable Risk Factors (NMRF) – RPO Test & SES Capital Add-On | ADVISORI
FRTB Non-Modellable Risk Factors require precise implementation of Basel III NMRF identification with specific capital calculation procedures and stress scenario calibration. As a leading AI consultancy, we develop tailored RegTech solutions for intelligent NMRF compliance, automated risk factor validation and strategic supervisory recognition optimization with full IP protection.
FRTB Ongoing Compliance
Ongoing adherence to FRTB requirements demands systematic monitoring, regular adjustments, and proactive optimization. We support you in establishing sustainable FRTB compliance.
FRTB P&L Attribution Test (PLAT) – Requirements, Methodology & Consulting | ADVISORI
FRTB Profit & Loss Attribution requires precise implementation of Basel III P&L allocation with specific risk factor decomposition requirements and model validation. As a leading AI consultancy, we develop tailored RegTech solutions for intelligent P&L attribution compliance, automated backtesting integration and strategic transparency optimisation with full IP protection.
FRTB Readiness Assessment
Our comprehensive FRTB readiness assessment identifies gaps in your current systems, processes, and data, quantifies the impact on your capital, and delivers a tailored implementation roadmap for efficient FRTB compliance.
Frequently Asked Questions about FRTB Market Risk Modeling – Sensitivity-Based Approach, Risk Classes & Risk Factor Modeling
What is the sensitivity-based approach (SbA) under FRTB?
The SbA is the new standardized approach under FRTB for calculating market risk capital requirements. Trading positions are assessed using delta (linear), vega (volatility) and curvature (non-linear) sensitivities, risk-weighted and aggregated across correlation matrices in three scenarios.
What risk classes does the FRTB define?
Seven risk classes: GIRR (interest rate risk), CSR non-sec, CSR sec CTP, CSR sec non-CTP (credit spread risk), equity, FX (foreign exchange) and commodity. Each has its own buckets, risk weights and correlation parameters.
How does delta-vega-curvature calculation work?
Delta measures linear price sensitivity to risk factors. Vega measures volatility sensitivity. Curvature captures non-linear risks by comparing valuation changes under upward and downward shocks. All three are calculated separately per risk class and aggregated to the SbA result.
What distinguishes the standardized approach (SA) from the internal models approach (IMA)?
The SA uses regulatory risk weights and correlations. The IMA allows proprietary Expected Shortfall models but requires desk-level approval, risk factor eligibility test and PnL attribution testing. The SA always serves as a floor.
What are non-modellable risk factors (NMRF)?
NMRFs are risk factors without sufficient real market price observations. They are subject to a separate stress-scenario-based capital add-on and are critical for the total capital requirement under the IMA.
How are the three correlation scenarios applied?
Capital requirements are calculated under high, medium and low correlations. The scenario with the highest requirement is binding – ensuring both diversification and concentration risks are adequately captured.
What role does risk factor modeling play?
It determines how market prices, interest rates, spreads, volatilities and commodity prices are represented. Under the SbA, risk factors are prescribed by regulators; under the IMA, banks must demonstrate modellability.
What does the residual risk add-on (RRAO) cover?
The RRAO supplements the SbA capital requirement for instruments with exotic underlyings (1% add-on) or special payout profiles (0.1% add-on) on the gross notional value.
How does ADVISORI support FRTB market risk modeling?
From gap analysis through SbA calculation chain design and risk factor taxonomy to productive implementation. We calibrate risk weights, implement delta-vega-curvature calculations and establish validation processes.
Success Stories
Discover how we support companies in their digital transformation
Digitalization in Steel Trading
Klöckner & Co
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Over 2 billion euros in annual revenue through digital channels
Goal to achieve 60% of revenue online by 2022
Improved customer satisfaction through automated processes
AI-Powered Manufacturing Optimization
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Smart Manufacturing Solutions for Maximum Value Creation
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Significant increase in production performance
Reduction of downtime and production costs
Improved sustainability through more efficient resource utilization
AI Automation in Production
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Intelligent Networking for Future-Proof Production Systems
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Improved production speed and flexibility
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Generative AI in Manufacturing
Bosch
AI Process Optimization for Improved Production Efficiency
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Reduction of AI application implementation time to just a few weeks
Improvement in product quality through early defect detection
Increased manufacturing efficiency through reduced downtime
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Our clients trust our expertise in digital transformation, compliance, and risk management
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