What is Granularity adjustment in FRM Part 2?

Add-on to asymptotic credit-portfolio capital for undiversified idiosyncratic risk from finite or concentrated exposures. ASRF assumes an infinitely fine-grained portfolio. A portfolio dominated by a few obligors needs a larger adjustment than thousands of similarly sized names.

Granularity adjustment

FRM Part 2 glossary · Credit Risk

Definition

Add-on to asymptotic credit-portfolio capital for undiversified idiosyncratic risk from finite or concentrated exposures.

Granularity adjustment in plain English

ASRF assumes an infinitely fine-grained portfolio. A portfolio dominated by a few obligors needs a larger adjustment than thousands of similarly sized names.

Learn these first

Economic capital
Value at Risk (VaR)

Related FRM Part 2 terms

Country risk premium (CRP)
Cover 2
Credit conversion factor (CCF)
Credit and Debit Valuation Adjustments (CVA/DVA)
Default waterfall
Distance to default (DD)
Economic capital
Excess spread
Expected Loss (EL)
Expected Positive Exposure (EPE)

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