New trading book QIS tackles correlation gripes
Basel Committee headquarters
Regulators may have swapped a capital burden for a computational one in their latest attempts to standardise the treatment of correlation in trading portfolios.
Existing proposals assumed correlation was higher for risk-additive positions and lower for offsetting ones, magnifying a bank's exposure in the first scenario and limiting netting benefits in the second. This asymmetry has now been removed – a key demand of industry critics during the third quantitative impact study (QIS) on the rules,
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