Dear David,
I'm confused by the two different formulas that applies to market risk capital charge: one is BASEL Market Risk Charge that equals to the maximum of k times the average VAR over the last 60 days and yesterday's VAR plus the specific risk charge; the other one is "Charge(MR) = (F1*VAR) + (F2*unused VAR) + (F3*excess) Are these two formulas substituting or complementing each other?
I have another basic question that I hope you don't mind: when calculating liquidity VAR, the spread (either constant or dynamic) will be divided by 2 in deriving the final VAR and you explained in your video cast that this is due to non "round trip". Can you kindly elaborate on this concept as I don't understand why. I think when seller offers to sell at the offer price but only sells it at the Bid price, shouldn't the loss be the whole bid-ask spread?
Thanks for your enlightenment!
Cheers!
Liming
19/10/2009
I'm confused by the two different formulas that applies to market risk capital charge: one is BASEL Market Risk Charge that equals to the maximum of k times the average VAR over the last 60 days and yesterday's VAR plus the specific risk charge; the other one is "Charge(MR) = (F1*VAR) + (F2*unused VAR) + (F3*excess) Are these two formulas substituting or complementing each other?
I have another basic question that I hope you don't mind: when calculating liquidity VAR, the spread (either constant or dynamic) will be divided by 2 in deriving the final VAR and you explained in your video cast that this is due to non "round trip". Can you kindly elaborate on this concept as I don't understand why. I think when seller offers to sell at the offer price but only sells it at the Bid price, shouldn't the loss be the whole bid-ask spread?
Thanks for your enlightenment!
Cheers!
Liming
19/10/2009
