Sensitivities-Based Method: Definition of Delta Risk Buckets, Risk Weights and Correlations

For buckets 1 to 15, for aggregating delta CSR non-securitisations risk positions within a bucket, the correlation parameter ρ kl between two weighted sensitivities WS k and WS ɭ within the same bucket, is set as follows, where: (1) ρ kl (name) is equal to 1 where the two names of sensitivities k and ∫ are identical, and 35% otherwise; (2) ρ kl (tenor) is equal to 1 if the two tenors of the sensitivities k and ∫ are identical, and to 65% otherwise; and (3) ρ kl (basis) is equal to 1 if the two sensitivities are related to same curves, and 99.90% otherwise. Bond and CDS credit spreads are considered distinct risk factors under [7.9](1), and ρ kl (basis) referenced in [7.54] and [7.55] is meant to capture only the bond-CDS basis. 7.55 For buckets 17 and 18, for aggregating delta CSR non-securitisations risk positions within a bucket, the correlation parameter ρ kl between two weighted sensitivities WS k and WS i within the same bucket is set as follows, where: (1) ρ k (name) is equal to 1 where the two names of sensitivities k and ∫ are identical, and 80% otherwise; (2) ρ k (tenor) is equal to 1 if the two tenors of the sensitivities k and ∫ are identical, and to 65% otherwise; and (3) ρ kl (basis) is equal to 1 if the two sensitivities are related to same curves, and 99.90%. 7.56 The correlations above do not apply to the other sector bucket (ie bucket 16). (1) The aggregation of delta CSR non-securitisation risk positions within the other sector bucket (ie bucket 16) would be equal to the simple sum of the absolute values of the net weighted sensitivities allocated to this bucket. The same method applies to the aggregation of vega risk positions. (2) The aggregation of curvature CSR non-securitisation risk positions within the other sector bucket (ie bucket 16) would be calculated by the formula below. 7.57 For aggregating delta CSR non-securitisation risk positions across buckets 1 to 16, the correlation parameter γbc is set as follows, where: (1) γ bc (rating) is equal to 50% where the two buckets b and c are both in buckets 1 to 15 and have a different rating category (either IG or HY/NR). γ bc (rating) is equal to 1 otherwise; and (2) γ bc (sector) is equal to 1 if the two buckets belong to the same sector, and to the specified numbers in Table 5 otherwise. Values of γ bc (sector) where the buckets do not belong to the same sector Table 5 Bucket 1/9 2/10 3/11 4/12 5/13 6/14 7/15 8 16 17 18 1/9 75% 10% 20% 25% 20% 15% 10% 0% 45% 45% 2/10 5% 15% 20% 15% 10% 10% 0% 45% 45% 3/11 5% 15% 20% 5% 20% 0% 45% 45% 4/12 20% 25% 5% 5% 0% 45% 45% 5/13 25% 5% 15% 0% 45% 45% 6/14 5% 20% 0% 45% 45% 7/15 5% 0% 45% 45% 8 0% 45% 45% 16 0% 0% 17 75% 18 Delta CSR securitisation (CTP) buckets, risk weights and correlations 7.58 Sensitivities to CSR arising from the CTP and its hedges are treated as a separate risk class as set out in 7.1 ]. The buckets, risk weights and correlations for the CSR securitisations (CTP) apply as follows: (1) The same bucket structure and correlation structure apply to the CSR securitisations (CTP) as those for the CSR non-securitisation framework as set out in [7.51] to [7.57] with an exception of index buckets (ie buckets 17 and 18). (2) The risk weights and correlation parameters of the delta CSR nonsecuritisations are modified to reflect longer liquidity horizons and larger basis risk as specified in [7.59] to [7.61]. 7.59 For calculating weighted sensitivities, the risk weights for buckets 1 to 16 are set out in Table 6. Risk weights are the same for all tenors (ie 0.5 years, 1 year, 3 years, 5 years, 10 years) within each bucket: Risk weights for sensitivities to CSR arising from the CTP Table 6 Bucket number Risk weight 1 4.0% 2 4.0% 3 8.0% 4 5.0% 5 4.0% 6 3.0% 7 2.0% 8 6.0% 9 13.0% 10 13.0% 11 16.0% 12 10.0% 13 12.0% 14 12.0% 15 12.0% 16 13.0%