Internal models approach to compute capital requirements


Under the Basel II Capital Accord, banks that have obtained prior regulatory approval can use the internal models approach to estimate their market risk capital requirement. What approach or methodology is used under the internal models approach to compute capital requirements?

A. Internal rating and vendor models

B. Stress testing and backtesting

C. Expected tail loss, as VAR is not a coherent measure of risk

D. VAR methodology

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Finance Basics: Internal models approach to compute capital requirements
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