2019Spring 13 capital required at target vs capital required
In exam report of 2019Spring #13, the given equity risk margin of $11,000 is "capital required AT TARGET", which supposed to be minimum required, or capital required/1.5; while the interest rate risk margin we calculated as $1222 is "capital required". Shall we adjust them either to min required level or required level before sum them up for market risk margin?
Comments
The formulas you use to get the capital required for all the individual pieces is the "capital at target". You don't need to divide by 1.5 until the very end after you've added up all those individual pieces. At that point you can think of converting the "capital at target" to "minimum capital required"
Don't get too hung up on the specific wording. Whether it says "capital required at target" or just "capital required", it should be the same thing. Then when you actually calculate the MCT ratio, that's when you have to divide by 1.5.
To specifically answer your question, you do not make an adjustment to min required level before summing to get total market risk margin. You do make that adjustment to the total capital required at target (of which market risk is a component) when calculating the actual MCT ratio at the very end.
Let me know if I didn't interpret your question correctly.
That explains well. Thank you so much.