Article 8
Calculation of the Kolmogorov-Smirnov test metric
1. Institutions shall calculate the Kolmogorov-Smirnov test metric referred to in Article 6(1) of this Regulation by performing the following steps in the following order:
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(a) |
they shall determine the time series of the most recent 250 business days of observations of the hypothetical and theoretical changes in the trading desk portfolio’s value; |
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(b) |
they shall calculate the empirical cumulative distribution function of the hypothetical changes in the trading desk portfolio’s value from the time series of the hypothetical changes referred to in point (a); |
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(c) |
they shall calculate the empirical cumulative distribution function of the theoretical changes in the trading desk portfolio’s value from the time series of the theoretical changes referred to in point (a); |
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(d) |
they shall obtain the Kolmogorov-Smirnov test metric by calculating the maximum difference between the two empirical cumulative distributions calculated in accordance with points (b) and (c) at any possible value of profit and loss. |
2. For the purposes of paragraph 1, the empirical distribution function obtained from a time series shall be understood as the function that, given any number as input, results in the ratio of the number of observations within the time series with lower or equal value than the input number to the total number of observations within the time series.