SCR Calculator User Manual

Swiss Solvency Test - Implementation Technicals

Base currency is default to be CHF. Any non-CHF currency will incur a foreign currency risk charge.

Single Asset SST calculation is well-explained using the "Explain this Calculation" button.

FINMA Official SST Standard Formula is risk-factor- and stochastic-simulation-based. The marginal capital impact of any asset therefore depends on the balance sheet profile. The SCR Calculator uses the same correlation matrix for risk factors as used in the official simulation process; and generate the CVaR-99 figure in a deterministic way.

In a portfolio SST aggregation:

• Loop through each asset and record its risk factor exposures (not stress amounts).
• Then aggregate these risk factor exposures for each risk factor.
• Then apply the correlation matrix to the aggregated risk factor exposures to work out a standard deviation.
• Then apply the official CVaR-99 stress to it to work out the portfolio-level stress amount.
• This stress amount can be separated out for each broad-risk-category, each involving several risk factors.
• Due to the aggregation procedures above, the broad-risk-category stresses are not a linear sum of the asset-level stresses (observable in single asset calculations). The portfolio-level stress is not a simple sum of the broad-risk-category stresses either.

The diversification benefit as calculated in the SCR Calculator for the SST regime is only for reference purpose. Due to the risk-factor-based, simulation-driven nature of the SST Standard Formula, there is not a set of otherwise "undiversified" capital figures to compare against. The SCR Calculator uses the broad-risk-category stresses as the "undiversified" capital figures. The calculation this way enables the investor to compare SST figures with those under other regimes on an equal footing.

These official market-risk-related risk scenarios are incorporated: Scenario #11, #12, #13, #41, #42, each assuming a 1% probability of happening.

Only for CDS stressing, a different (but still officially-defined by FINMA) Delta-Normal approach is used. It differs from the risk-factor-based approach in that tail stresses, rather than risk exposures, are aggregated. The stressing happens before the aggregation.

Official SST credit risk for financial assets is via a reduced form model. Such discrete state modelling is valid for a large, diversified portfolio but will produce erratic results for a small-ish portfolio. It is also impossible to use for a single asset's credit risk calibration. Therefore in the SCR Calculator, the older (but still officially allowed) method of BASEL-III approach is used.