Handbook of Basel III Capital by Ramirez Juan;

Author:Ramirez, Juan; [Ramirez, Juan]
Language: eng
Format: epub
Publisher: John Wiley & Sons, Incorporated
Published: 2017-01-20T00:00:00+00:00

A type of statistical distribution is assumed for the data;

The mean of the data is calculated;

The standard deviation (i.e., the volatility) of the data is calculated;

The 90% interval of mid‐prices (or mid‐rates) is estimated; and

The prudent mid‐price (or mid‐rate) is calculated.

Calculation of the Prudent Values Assuming a Normal Distribution

Next the steps in Figure 7.26 are followed, assuming a normal distribution.

Step 1: Calculation of the Mean

 A type of statistical distribution is assumed for the data. Normally there are three types of distribution considered: normal, log‐normal or t‐statistic distributions. I assume that the bank selected the normal distribution as the type of distribution that best represented the series of mid‐prices.

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