Further Reading

Chapter 14: Market Risk and the Basel Framework in Practice

Essential Reading

BCBS (2019). Minimum Capital Requirements for Market Risk (FRTB — January 2019 Revision). The definitive Basel Committee standard for FRTB — the Fundamental Review of the Trading Book. Contains the complete specification for both the SA (sensitivity-based method) and IMA (ES with liquidity horizons, PLA tests, NMRF treatment). Free at bis.org. Essential for any practitioner implementing or understanding FRTB.

BCBS (2016). Standards: Interest Rate Risk in the Banking Book. The Basel standard for IRRBB — covering EVE and NII measurement, standardized shocks, and Pillar 2 capital treatment. Free at bis.org. The primary reference for banking book interest rate risk management.

European Banking Authority (2024). EBA FRTB Reporting Framework. The EBA's technical standards for COREP FRTB reporting — templates C 31.00 and C 32.00. Available at eba.europa.eu. Essential for EU institutions implementing FRTB regulatory reporting.

Jorion, P. (2006). Value at Risk: The New Benchmark for Managing Financial Risk, 3rd ed. McGraw-Hill. The canonical textbook on VaR — covering all three calculation approaches (historical, parametric, Monte Carlo), backtesting, and extensions. Despite predating FRTB, remains the best foundation text for understanding VaR methodology.

For Practitioners

PRA (2022). Supervisory Statement SS13/13: Market Risk — Internal Model Approach. PRA's guidance on IMA requirements for UK-regulated firms, including PLA test expectations and NMRF treatment. Available at bankofengland.co.uk.

Schuermann, T. (2014). "Stress Testing Banks." International Journal of Forecasting, 30(3), 717–728. Academic analysis of stress testing methodology — directly relevant to market risk stress scenarios and reverse stress testing.

ISDA / GFMA / IIF (2015). FRTB Industry Analysis. The industry associations' joint analysis of FRTB's capital impact — quantifying the capital increase across different institution types. Available at isda.org. Useful for benchmarking capital impact assessments.

OpenGamma (2018). A Practical Guide to FRTB. A practitioner-focused technical guide to FRTB's sensitivity-based SA and IMA — including worked examples of delta, vega, and curvature calculations. Available at opengamma.com.

For the Curious

Taleb, N.N. (1997). Dynamic Hedging: Managing Vanilla and Exotic Options. Wiley. Taleb's practitioner text on options risk management — directly relevant to the volatility smile dynamics discussed in the case study and the limitations of delta-hedging for complex options books.

Cont, R. (2001). "Empirical Properties of Asset Returns: Stylized Facts and Statistical Issues." Quantitative Finance, 1(2), 223–236. Academic paper documenting the "stylized facts" of financial returns — fat tails, volatility clustering, negative skewness — that motivate departures from the normal distribution assumption in parametric VaR.

McNeil, A.J., Frey, R., & Embrechts, P. (2015). Quantitative Risk Management: Concepts, Techniques and Tools, rev. ed. Princeton University Press. Graduate-level text on quantitative risk management — covering VaR, ES, copulas for correlation modeling, and extreme value theory. The authoritative academic reference for the mathematical foundations of market risk.

Derman, E. (2004). My Life as a Quant: Reflections on Physics and Finance. Wiley. Memoir of a pioneering quantitative analyst — provides historical perspective on the development of options pricing (Black-Scholes, local vol models) and their application to market risk. Accessible narrative of how quantitative risk management evolved.

Regulatory Primary Sources

Technology References