Last Updated: 2026-01-27
This document defines the drawdown-based capital treatment used for the unmatched portion of assets that must be resilient to forced sale during stress.
Core Question
If we were forced to liquidate during stress, what loss could we realize at a conservative confidence level?
FRTB-Style Drawdown (Concept)
We model this as an Expected Shortfall-style drawdown concept (FRTB-inspired), over a chosen stress horizon.
This is the “market risk drawdown” capital component.
Inputs (To Be Calibrated)
- Confidence level (e.g., 97.5%)
- Stress horizon (e.g., 10 trading days)
- Stressed calibration approach (historical window / scenario set)
- Liquidity assumptions (can we liquidate at modelled prices?)
Outputs
frtb_drawdown_CRRfor eligible liquid TradFi assets (or per-asset-class calibration parameters that convert to a CRR)
Combination Rule
frtb_drawdown_CRR is the forced-sale capital term for liquid assets. In the capital formula it is combined with fundamental risk (risk weight) via a simple loss envelope:
Unmatched Capital = Position Size × max(Risk Weight, FRTB Drawdown)
See capital-formula.md and matching.md for the matched/unmatched split.
Connections
- Asset primitive definition:
asset-classification.md(drawdown risk) - Matched vs unmatched treatment:
matching.md - Capital composition:
capital-formula.md - Examples:
asset-type-treatment.md