FRTB and Fat Tails

Thomas Roos

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SSRN Electronic Journal

Article . 2020 . Peer-reviewed

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https://dx.doi.org/10.2139/ssr...

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FRTB and Fat Tails

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type 01 Jan 2020 English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: Thomas Roos;

doi: 10.2139/ssrn.3708061

FRTB and Fat Tails

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Abstract

We calculate the probability of returns exceeding a multiple of Expected Shortfall for fat-tailed portfolios. Our results show that, taken in isolation, the Basel 3 FRTB Market Risk capital requirements are insufficient to prevent a large number of insolvencies. The impact of applying a cutoff to the tail distribution is also examined.

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