Fundamental Review of the Trading Book

London Financial Studies
Training overview
Professional Course
2 days

Course description

London Financial Studies Training

Fundamental Review of the Trading Book - 2 day Training Course

In January 2016, the Basel Committee on Banking Supervision issued a standards document commonly referred to as the Fundamental Review of the Trading Book (FRTB). The changes outlined in this document have a significant impact on banks globally - they cover numerous aspects of the trading book, including the definition of the trading book and trading desks, risk measurement and capitalization, and the supervision of internal risk models.

This course explores the new capital calculations, with practical examples of the new standard capital calculations as well as rules and principles behind internal models. The program develops a set of tools which are applied cumulatively in a sequence of workshops to demonstrate various aspects of these new capital calculations. Concepts are then extended to investigate internal models, expected shortfall and the treatment of credit risk within the FRTB.

Given the wide scope of the FRTB, the course also explores the impact of the new standards on the banking industry. This includes the implications of the new capital regime on various business lines and how banks are likely to divide their businesses into trading desks. Under the FRTB there will be a greater onus on banks to have better risk management and control procedures. Practical guidelines are given for implementing these new procedures and the impact they will have on business strategy and risk management.

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Who should attend?

  • Traders and Dealing Room Staff
  • Risk Managers
  • Middle Office and Senior Managers
  • Investors
  • Quantitative Analysts, Financial Engineers and Systems Developers
  • Structured Products Desks, Product Controllers and Researchers
  • Loan Portfolio Managers and Fund Managers
  • Credit Analysts and Credit Risk Managers

Training content

Day One:

Background, Market Risk, Trading Books and the Standardized Approach

Background to Risk Management and Regulation

  • History of risk management regulation
  • Probability distributions, volatility and correlation
  • VaR as a failed risk measure
  • Motivation for new regulation

Trading Books and Trading Desks

  • Defining a trading book and relationship to IFRS 9
  • Separation between banking book and trading book
  • Trading desk as a unit of regulatory approval
  • Defining trading desks
  • Impact division into trading desks on capital

Workshop: Allocating positions to trading book / banking book

The Standardized Approach to Market Risk

  • Key features of the standardized approach
  • Defining risk factors and sensitivities
  • Treatment of linear risk and curvature risk
  • Impact of the new standardized approach
  • Residual Risk Add-ons

Workshop: Example of the new standardized approach - delta and curvature risk.

Reviewing the approach to CVA Capital Charges

  • Review of CVA calculations
  • Holding capital against changes in CVA
  • Introducing the two method for calculating CVA capital charge
  • FRTB - CVA the standardized approach
  • CVA, Debt value adjustment (DVA) and Funding value adjustment (FVA)

Workshop: Simulating the credit exposure of a portfolio of options

Day Two

Internal Models, Introduction of the Default Risk Charge, and Capital Impact

Expected Shortfall and the Internal Model Approach

  • Changes to the regulations on Internal Models
  • Coherent risk measures
  • Expected shortfall (ES) as an alternative risk measure
  • Comparison of ES and VaR
  • Partial ES
  • Regulatory stress tests and asset quality reviews

Workshop: Comparing VAR and ES

Model Approval, P&L Attribution and Non-modelable Risk

  • Model validation standards
  • P&L attribution
  • Backtesting of internal models
  • FRTB definition of non-modelable risk
  • Calculating capital for non-modelable risk
  • Identifying trades to reduce ES
  • Allocating risk and capital to individual trading desks

Default Risk Charge

  • Scope of the default risk charge (DRC)
  • Standardized approach to the default risk charge
  • Applying the concept of jump to default
  • Netting and default risk calculations
  • Internal model approaches to default risk charge
  • Implementing an internal model

Workshop: Example of calculating the DRC

Changes To Risk Management Frameworks

  • Linking capital to risk
  • Implementation challenges of the FRTB
  • Changes to future risk management practices
  • Issues not addressed by FRTB
  • Products and businesses impacted by FRTB


The cost of the Fundamental Review of the Trading Book training course is available upon request.

Certification / Credits

London Financial Studies is registered with CFA and GARP Institute as an Approved Provider of continuing education programs. GARP & CFA Institute members attending this course are eligible for 16 CE/CPD credits

About London Financial Studies

London Financial Studies

Global markets move quickly, evolving continuously and deepening in complexity. Over the past decades London Financial Studies has provided specialist executive education programs and short courses focused exclusively on global capital markets. Preparing only the highest quality and most relevant...

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