Spring 2017 #21
The question states that "Assume that the MCT total uncapped operational risk margin is less than 30% of the sum of asset and insurance risk"
How come in the operational risk deduction part of the solution, it's including the 30% on top of the risk factor? Since cap req for operational risk = min(30%*CR(0), sum of A components + max(B components) (don't have B components in this question), and we know the cap on operational risk does not apply, Shouldn't it only have the risk factor in the multiplication, so operational risk = 5000 - 0.085(36000)?
Comments
The 30% in the formula is the risk factor for equity risk, not the cap on operational risk
follow up on this question:
1) the question only specifies "plausible adverse scenario" and does not tell us explicitly if they want the impact due to a solvency scenario (loss distribution over 95%) or a going concern scenario (loss distribution 90-95%), how would we know which percentile to select?
2) the numbers given in 2017 to calculate MCT doesn't seem to be working out. I worked backward from MCT ratio to get the capital required for market risk since I noticed only equity, interest, and foreign risk was given and we are missing real estate, right of use, and other risk. When I worked backwards, I found that the sum of real estate, right of use and other risk was not 0. Is anyone else finding that numbers don't work out?
1) I believe there was no going concern scenarios under the DCAT. This is an old question
2) They could be non-zero. How does it affect the question? They will not change due to a decline in the stock portfolio