Article 18 | Delegated Regulation 2024/397

Article 18 - Non-linearity coefficient for a bucket

Article 18

Non-linearity coefficient for a bucket

Where the stress scenario risk measure for which institutions are determining the non-linearity coefficient has been determined for a non-modellable standardised bucket, the non-linearity coefficient shall be determined as follows:

(a)

where the extreme scenario of future shock does not correspond to a scenario identified in accordance with Article 6(1), point (b), where the value of the parameter β referred to in Article 6(1), point (c), it set equal to 1, institutions shall set the non-linearity coefficient

for that non-modellable bucket;

(b)

where the extreme scenario of future shock is a scenario where the corresponding downward shock determined in accordance with Article 6(1), point (b) is applied to each risk factor in the non-modellable bucket, institutions shall calculate the non-linearity coefficient in accordance with the following formula:

where:

—

;

—

—	is the median of the estimates of the tail parameters calculated in accordance with Article 19 for each of the risk factors within the bucket;

—	loss0 is the loss occurring when the corresponding downward shock determined in accordance with Article 6(1), point (b), is applied to each risk factor in the non-modellable bucket;

—	is the loss occurring when the corresponding downward shock determined in accordance with Article 6(1), point (b), multiplied by is applied to each risk factor in the non-modellable bucket;

—	is the loss occurring when the corresponding downward shock determined in accordance with Article 6(1), point (b), multiplied by is applied to each risk factor in the non-modellable bucket;

(c)

where the extreme scenario of future shock is a scenario where the corresponding upward shock determined in accordance with Article 6(1), point (b), is applied to each risk factor in the non-modellable bucket, institutions shall calculate the non-linearity coefficient in accordance with the following formula:

where:

—

;

—

—	is the median of the estimates of the tail parameters calculated in accordance with Article 19 for each of the risk factors within the bucket;

—	loss0 is the loss occurring when the corresponding upward shock determined in accordance with Article 6(1), point (b), is applied to each risk factor in the non-modellable bucket;

—	is the loss occurring when the corresponding upward shock determined in accordance with Article 6(1), point (b), multiplied by is applied to each risk factor in the non-modellable bucket;

—	is the loss occurring when the corresponding upward shock determined in accordance with Article 6(1), point (b), multiplied by is applied to each risk factor in the non-modellable bucket.

Recitals

CHAPTER 1 - DEVELOPMENT AND APPLICATION OF THE EXTREME SCENARIOS OF FUTURE SHOCK (Article 1-13)

CHAPTER 2 - REGULATORY EXTREME SCENARIO OF FUTURE SHOCK (Article 14)

CHAPTER 3 - CIRCUMSTANCES UNDER WHICH INSTITUTIONS MAY CALCULATE A STRESS SCENARIO RISK MEASURE FOR MORE THAN ONE NON-MODELLABLE RISK FACTOR (Article 15)

CHAPTER 4 - AGGREGATION OF THE STRESS SCENARIO RISK MEASURES (Article 16-20)Article 16 - Aggregation of the stress scenario risk measures Article 17 - Non-linearity coefficient for a single risk factor Article 18 - Non-linearity coefficient for a bucket Article 19 - Calculation of the estimate of the tail parameter Article 20 - Calculation of the uncertainty compensation factor

CHAPTER 5 - QUALITATIVE REQUIREMENTS (Article 21)

CHAPTER 6 - FINAL PROVISIONS (Article 22)

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Article 18 - Non-linearity coefficient for a bucket

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