Regulatory & Risk Frameworks for Quants
Modern quant work is no longer just about pricing models.
It is about how regulation, capital, risk frameworks, and model validation shape:
which models desks are allowed to use
how trades are structured
what gets hedged
what survives model approval
and ultimately what makes money after capital costs.
Most candidates learn models in isolation.
But interviews and desks test something different:
Do you understand how Basel rules, FRTB, CVA, SA-CCR, and model validation change real trading decisions?
This guide is built to close that gap.
What this guide covers
1. Regulatory foundations
Why Basel III exists
How crises changed model usage
Regulatory objectives vs trading objectives
Timeline: Basel I → II → III → FRTB → CVA capital → output floors
2. Market risk & FRTB (desk reality)
VaR vs Expected Shortfall
Liquidity horizons
Risk factor eligibility test (RFET)
Non-modellable risk factors (NMRF)
Standardized vs Internal Models Approach
Why exotic desks were shut post-2019
3. Credit risk modeling
PD / LGD / EAD
Vasicek model intuition
Retail vs corporate portfolios
IRB vs standardized approach
Why some products destroy capital efficiency
4. Counterparty risk & XVA capital
CVA pricing vs CVA capital
SA-CCR mechanics
Exposure profiles explained visually
Wrong-way risk
Netting & collateral effects
Why long-dated swaps are “capital toxic”
5. Model validation (what actually gets checked)
SR 11-7 expectations
Benchmarking
Sensitivity stability tests
Backtesting traffic-light rules
Documentation requirements
Why neural networks fail approvals
What breaks models in reviews
6. Capital-driven model choice
Why simpler models often win
Accuracy vs capital trade-off
When traders downgrade models deliberately
Capital-adjusted ROE logic
7. Asset-class specific distortions
Rates: FRTB vs Bermudan pricing
FX: NMRF and proxy risk factors
Equity: autocallables vs capital blow-ups
Credit: tranche capital asymmetry
8. Stress testing & regulatory scenarios
Macro stress construction
Logistic PD models
Capital depletion paths
Supervisory stress vs internal stress
9. PnL attribution under regulation
Clean vs dirty PnL
Model vs market vs hedge slippage
Regulatory capital PnL effects
When models get blamed
10. Interviews & desk survival
50+ interview questions
Pressure scenarios
“3-second answers” for regulators vs traders
How to speak the language of risk committees
Who this is for
Aspiring front-office quants
Risk and XVA quants
Model validation analysts
Credit risk strategists
Desk quants who want to understand capital mechanics
Anyone interviewing for quant, risk, or model roles
What makes this different
This is not:
a legal summary of Basel
a pure risk-math textbook
or a compliance document
It is:
a desk-level map of how regulation reshapes models, PnL, hedging, and careers.
Written from the perspective of model choice under capital constraints.
Format
Structured modules
Real desk case studies
Mathematical intuition where needed
Capital flow diagrams
Model validation checklists
Practical examples
Interview toolkit
Coupon
Use code RISK10 for 10% off
Disclaimer
This material is provided for educational purposes only.
It does not constitute financial, investment, trading, regulatory, or legal advice.
All examples are illustrative.
No trading decisions, risk management actions, or regulatory submissions should be based solely on this material.