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CVaR = UL - EL

OpVaR =UL + EL

The logic behind, deducting EL from CVaR is, I understand, because EL is projected by the bank as bad loans charge/ provision, and to avoid double counting for Basel capital charge (bad loans provision on P&L is effectively reduces Retained Earnings, and thus Regulatory Capital)

OpVaR on the other hand, one has to add expected operational loss, as it is not normally provisioned for specifically.Instead banks allocate budget to cover for operational losses. In this case, bank is exempted from Basel operational risk charge.

Correct me or confirm, if logic above is correct.

CVaR (for exam purposes) can be calculated in two ways. ( in all cases EL = LGD * PD* EAD)

1.Merton model, when the debt of company is assumed to be one zero coupon bond, CVaR =Bond Parvalue - bond value at quantile - EL.

2.Portfolio of credit risk sensitive assets (Loans). You'RE given in such case N - number of assets, V-equal size of each position in portfolio, and simplifying assumptions of zero correlation.

in such case UL = (1-Conf.level)*N*V

And the CVaR = UL - EL.

OpVaR on the other hand can be calculated only in LDA approach, with frequency and severity distribution given.

EL is then equal to product of weighted averages of freq and severity distro.

UL, we need to multiply expected frequency (weighted ave) multiply with prob of each severity and calculate cumulative probability ranked from most severe to less severe loss. The loss at which (1-conf.level) is crossed is our UL. The rest is obvious.

Am I correct, or is there any other cases?

How about Ong's way of calculating UL? In what cases we need to apply Ong's UL?

OpVaR =UL + EL

The logic behind, deducting EL from CVaR is, I understand, because EL is projected by the bank as bad loans charge/ provision, and to avoid double counting for Basel capital charge (bad loans provision on P&L is effectively reduces Retained Earnings, and thus Regulatory Capital)

OpVaR on the other hand, one has to add expected operational loss, as it is not normally provisioned for specifically.Instead banks allocate budget to cover for operational losses. In this case, bank is exempted from Basel operational risk charge.

Correct me or confirm, if logic above is correct.

CVaR (for exam purposes) can be calculated in two ways. ( in all cases EL = LGD * PD* EAD)

1.Merton model, when the debt of company is assumed to be one zero coupon bond, CVaR =Bond Parvalue - bond value at quantile - EL.

2.Portfolio of credit risk sensitive assets (Loans). You'RE given in such case N - number of assets, V-equal size of each position in portfolio, and simplifying assumptions of zero correlation.

in such case UL = (1-Conf.level)*N*V

And the CVaR = UL - EL.

OpVaR on the other hand can be calculated only in LDA approach, with frequency and severity distribution given.

EL is then equal to product of weighted averages of freq and severity distro.

UL, we need to multiply expected frequency (weighted ave) multiply with prob of each severity and calculate cumulative probability ranked from most severe to less severe loss. The loss at which (1-conf.level) is crossed is our UL. The rest is obvious.

Am I correct, or is there any other cases?

How about Ong's way of calculating UL? In what cases we need to apply Ong's UL?

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