Minimum Capital Requirements for Market Risk

For aggregating delta FX risk positions across buckets, the correlation parameter Y bc is uniformly set to 60%. 22 Specified currencies by the Basel Committee are: EUR, USD, GBP, AUD, JPY, SEK, CAD as well as the domestic reporting currency of a bank. 23 The delta GIRR correlation parameters ( ρ kl ) set out in Table 2 is determined by ma , where Tk (respectivelyTl) is the tenor that relates to W Sk (respectively W Sl); and θ is set at 3%. For example, the correlation between a sensitivity to the one-year tenor of the Eonia swap curve and the a sensitivity to the five-year tenor of the Eonia swap curve in the same currency is max = 88.69% 24 For example, the correlation between a sensitivity to the one-year tenor of the Eonia swap curve and a sensitivity to the five-year tenor of the three-month Euribor swap curve in the same currency is (88.69%) . (0.999) = 88.60%. 25 Covered bonds must meet the definition provided by Large Exposure Rules for Banks issued via SAMA circular No. 1651 / 67 dated 09/01/1441 . 26 Credit quality is not a differentiating consideration for this bucket. 27 For covered bonds that are rated AA- or higher, the applicable risk weight may at the discretion of the bank be 1.5%.. 28 For example, a sensitivity to the five-year Apple bond curve and a sensitivity to the 10- year Google CDS curve would be 35% . .65% . 99.90% = 22.73%. 29 Credit quality is not a differentiating consideration for this bucket. 30 Market capitalisation or economy (ie advanced or emerging market) is not a differentiating consideration for this bucket. 31 For example, the correlation between the sensitivity to Brent, one-year tenor, for delivery in Le Havre and the sensitivity to WTI, five-year tenor, for delivery in Oklahoma is 95% - 99.00% - 99.90% = 93.96%. 32 Specified currency pairs are: SAR/USD, USD/EUR, USD/JPY, USD/GBP, USD/AUD, USD/CAD, USD/CHF, USD/MXN, USD/CNY, USD/NZD, USD/RUB, USD/HKD, USD/SGD, USD/TRY, USD/KRW, USD/SEK, USD/ZAR, USD/INR, USD/NOK, USD/BRL. 33 example, EUR/AUD is not among the selected currency pairs specified by the Basel Committee, but is a first-order cross of USD/EUR and USD/AUD. Sensitivities-Based Method: Definition of Vega Risk Buckets, Risk Weights and Correlations 7.90 [7.91] to [7.95] set out buckets, risk weights and correlation parameters to calculate vega risk capital requirement as set out in [7.4]. 7.91 The same bucket definitions for each risk class are used for vega risk as for delta risk. 7.92 For calculating weighted sensitivities for vega risk, the risk of market illiquidity is incorporated into the determination of vega risk, by assigning different liquidity horizons for each risk class as set out in Table 13. The risk weight for each risk class 34 is also set out in Table 13. Regulatory liquidity horizon, LH risk class and risk weights per risk class Table 13 Risk class LH risk class Risk weights GIRR 60 100% CSR non-securitisations 120 100% CSR securitisations (CTP) 120 100% CSR securitisations (non-CTP) 120 100% Equity (large cap and indices) 20 77.78% Equity (small cap and other sector) 60 100% Commodity 120 100% FX 40 100% 7.93 For aggregating vega GIRR risk positions within a bucket, the correlation parameter ρ kl is set as follows, where: (1) p kl (option maturity) is equal to ? , where: (a) α is set at 1%; (b) T k (respectively T l ) is the maturity of the option from which the vega sensitivity VR k ( VR l ) is derived, expressed as a number of years; and (2) p kl (underlyins maturity) is equal to ? , where: (a) α is set at 1%; and (b) T k u (respectively T l u ) is the maturity of the underlying of the option from which the sensitivity VR k (VR l ) is derived, expressed as a number of years after the maturity of the option.