Practitioner course in risk management
Basel III and Market Risk Capital
How banks are told to hold capital against trading losses: the Basel framework and its history, the Fundamental Review of the Trading Book, the standardised approach with its sensitivities, the internal models approach with expected shortfall, and the tests a desk must pass to use it.
Basel III sets how much capital a bank must hold against the risk of its trading positions. The rules decide which trades are profitable after capital, which desks may use their own models, and how risk is reported to regulators. This course explains the market risk part of the framework and works the calculations.
What changed with the Fundamental Review of the Trading Book?
It replaced Value at Risk with expected shortfall for internal models, introduced liquidity horizons so that hard-to-sell positions carry more capital, made the standardised approach sensitivity-based, and added strict tests that each desk must pass to use its own model. Banks spent years implementing it, and the work continues.
How is the course taught?
Audio lessons give the general subject, explainer films show a capital calculation built up from sensitivities, and the workbooks hold the formulas, worked examples and cheat sheets of the rules. The lab receives written feedback from the faculty.
Who is this course for?
Risk analysts, finance staff and quants working in or with banks. It counts toward the Certificate in Quantitative Risk Management and so toward the Fellowship in Computational Finance.
What you will be able to do
- Explain the structure of Basel III capital and where market risk fits.
- Compute a standardised-approach charge from delta, vega and curvature sensitivities.
- Describe the internal models approach, liquidity horizons and the expected-shortfall calculation.
- Run the backtesting and profit-and-loss attribution tests that decide which desks may use internal models.
Syllabus, module by module
Why banks hold capital
Basel I to III, capital ratios and the place of market risk.
The trading book boundary
What counts as trading, and why the boundary was redrawn.
The standardised approach
Risk classes, delta, vega and curvature charges, and correlation scenarios.
The internal models approach
Expected shortfall at 97.5%, liquidity horizons and stressed calibration.
Tests for internal models
Backtesting, profit-and-loss attribution and non-modellable risk factors.
Capital in practice
Reporting, capital planning and how capital changes what desks trade.
How the certificate is earned
Quizzes at the end of each unit and a graded lab: a standardised-approach capital calculation for a small trading book, with a written summary for a risk committee. On a pass you receive the Course certificate in Basel III and Market Risk Capital, issued by the Institute with a verification code. Read how certification works.
Before you start
Value at Risk at the Institute's level.
This course counts toward
- Certificate in Quantitative Risk ManagementA financial risk management certification in one semester of eleven courses and a capstone on measuring and governing market and credit risk: VaR and expected shortfall, volatility models, stress tests, credit and counterparty risk, bank capital and the validation of the models themselves.
- Fellowship in Computational FinanceThe top credential on the researcher path. Four semesters, 38 courses, and a dissertation supervised in writing and examined by two faculty members.
Questions applicants ask
What is Basel III?
Basel III is the international framework of the Basel Committee on Banking Supervision that sets how much capital and liquidity banks must hold. Its market risk part, known as the Fundamental Review of the Trading Book, sets capital for trading positions.
Is this course useful outside banks?
Mostly for people who work with banks: regulators, consultants, software vendors and auditors. Within banks it is core knowledge for market risk, finance and model validation roles.