Question ID:
2021_6122
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Market risk
Article:
325h
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
not applicable
Disclose name of institution / entity:
No
Type of submitter:
Consultancy firm
Subject Matter:
Gamma correlations regarding curvature risk in low and high scenario
Question:

To calculate the gamma correlation to be used for the curvature risk in the low and high scenarios, should institutions at first square the gamma correlation used for the delta risk and then apply the formulas provided for in Article 325h CRR or vice versa?

Background on the question:

Article 325ay(5) reports that the curvature risk correlations shall be the square of corresponding delta risk correlations ρ_kl and γ_bc referred to in Subsection 1. 

Article 325h Regulation (EU) No 575/2013 (CRR) - as amended by Regulation (EU) No 2019/876 and Commission delegated Regulation (EU) 2021/424 - reports the formulas to apply at the rho and gamma correlations to obtain the rho and gamma correlations in the low and high scenarios. 

The legal text does not define which of the two Articles should be applied first.

Date of submission:
29/07/2021
Published as Final Q&A:
11/02/2022
Final Answer:

The correlation parameters ρkl and γbc to be used in the calculation of the risk-class specific curvature own funds requirements for the low and high correlations scenarios of Article 325h(2) Regulation (EU) No 575/2013 as amended (CRR), shall be the corresponding delta risk correlations ρkl and γbc after they are squared following Article 325ay(5) CRR.

Status:
Final Q&A
Answer prepared by:
Answer prepared by the EBA.
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