Blog: Reduce your risk, hold more capital - #292
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FRTB's standardised approach charges a desk 14% more capital for a hedge that cuts its real risk by 10%. The post extracts the framework as a formal specification, states the risk sensitivity property it never writes down, and shows the propagated test falsifying it against the standard's own parameters. Reported by ISDA in 2015, softened by Basel in 2019, still in force. Companion repo: https://github.com/yavorpanayotov/frtb-hedging-penalty Draft: true; publishedDate is a placeholder to set at publication.
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New post for the ground-truth series: FRTB's standardised approach charges a desk 14% more capital for a hedge that cuts its real risk by 10%.
The post extracts the framework's interest-rate slice as a formal specification with allium, states the risk sensitivity property the standard never writes down, and shows the propagated test falsifying it against the standard's own published parameters. The timeline: reported by ISDA in February 2015, ten weeks after the draft; acknowledged by the Basel Committee in 2018; softened in 2019; the counterexample runs on the softened formula.
Every number and quote is reproducible from the companion repo: https://github.com/yavorpanayotov/frtb-hedging-penalty
Notes for review:
draft: trueandpublishedDateis a placeholder; both to be finalised at publication.src/assets/blog/andpublic/images/).