The FRTB-IMA computational challenge for Equity Autocallables

TL;DR

This paper extends a Chebyshev-based technique to significantly reduce computational costs in FRTB-IMA capital calculations for equity autocallables, achieving over 90% efficiency gains while maintaining accuracy.

Contribution

It introduces an extension of the Orthogonal Chebyshev Sliding Technique to equity autocallables, enabling substantial computational savings in FRTB-IMA calculations.

Findings

Computational costs reduced by about 90% for equity autocallables.

The technique passes PLA tests, ensuring accuracy.

Extension is significant for practical FRTB-IMA implementation.

Abstract

When the Orthogonal Chebyshev Sliding Technique was introduced it was applied to a portfolio of swaps and swaptions within the context of the FRTB-IMA capital calculation. The computational cost associated to the computation of the ES values - an essential component of the capital caluclation under FRTB-IMA - was reduced by more than $90\%$ while passing PLA tests. This paper extends the use of the Orthogonal Chebyshev Sliding Technique to portfolios of equity autocallables defined over a range of spot underlyings. Results are very positive as computational reductions are of about $90\%$ with passing PLA metrics. Since equity autocallables are a commonly traded exotic trade type, with significant FRTB-IMA computational costs, the extension presented in this paper constitutes an imporant step forward in tackling the computational challenges associated to an efficient FRTB-IMA implementation.