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Article 325bc - Partial expected shortfall calculations

Article 325bc

Partial expected shortfall calculations

1.  

Institutions shall calculate all the partial expected shortfall measures referred to in Article 325bb(1) as follows:

(a) 

daily calculations of the partial expected shortfall measures;

(b) 

at 97,5th percentile, one tailed confidence interval;

(c) 

for a given portfolio of trading book positions and non-trading book positions that are subject to foreign exchange or commodity risk, institutions shall calculate the partial expected shortfall measure at time ‘t’ in accordance with the following formula:

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where:

PESt

=

the partial expected shortfall measure at time t;

j

=

the index that denotes the five liquidity horizons listed in the first column of Table 1;

LHj

=

the length of liquidity horizons j as expressed in days in Table 1;

T

=

the base time horizon, where T = 10 days;

PESt(T)

=

the partial expected shortfall measure that is determined by applying scenarios of future shocks with a 10-day time horizon only to the specific set of modellable risk factors of the positions in the portfolio set out in paragraphs 2, 3 and 4 for each partial expected shortfall measure referred to in Article 325bb(1); and

PESt(T, j)

=

the partial expected shortfall measure that is determined by applying scenarios of future shocks with a 10-day time horizon only to the specific set of modellable risk factors of the positions in the portfolio set out in paragraphs 2, 3 and 4 for each partial expected shortfall measure referred to in Article 325bb(1) and of which the effective liquidity horizon, as determined in accordance with Article 325bd(2), is equal or longer than LHj.



Table 1

Liquidity horizon j

Length of liquidity horizon j

(in days)

1

10

2

20

3

40

4

60

5

120

2.  
For the purpose of calculating the partial expected shortfall measures

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and

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referred to in Article 325bb(1), in addition to the requirements set out in paragraph 1 of this Article, institutions shall meet the following requirements:
(a) 
in calculating

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, institutions shall only apply scenarios of future shocks to a subset of the modellable risk factors of the positions in the portfolio which has been chosen by the institution, to the satisfaction of the competent authorities, so that the following condition is met with the sum taken over from the preceding 60 business days: