As the third component of the Standardized Approach of the Fundamental Review of the Trading Book [1], the Residual Risk Add-On tries to capture the risks not covered by the other two components (Sensitivity Based Method and Default Risk Charge) and plays the role of Risk Not in VaR program or...

The Standardized Approach (SA) under the most recent Basel market risk framework – the Fundamental Review of the Trading Book (FRTB) received little attention on its model risk probably because that it is prescribed by the regulators and needs less strict validation and approval process. This...