Chapter 4, Article 17 · Commission Delegated Regulation (EU) 2024/397

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Article 17Non-linearity coefficient for a single risk factor#

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

(a)where the extreme scenario of future shock for the non-modellable risk factor does not coincide with either the downward calibrated shock or the upward calibrated shock determined in accordance with Article 3(1), point (b), institutions shall set κ1 for that non-modellable risk factor;

(b)where the extreme scenario of future shock for the non-modellable risk factor coincides with the downward calibrated shock determined in accordance with Article 3(1), point (b), institutions shall calculate the non-linearity coefficient in accordance with the following formula:κminmaxκmin; 1loss – 1 – 2loss0loss12loss0ɸ – 125; κmaxwhere:

—κmin0,9;

—κmax5;

—ɸ is the estimate of the tail parameter for the non-modellable risk factor calculated in accordance with Article 19;

—loss₀ is the loss that occurs when the downward shock CS_down determined in accordance with Article 3(1), point (b) is applied to the non-modellable risk factor;

—loss – 1 is the loss that occurs when a downward shock equal to 45CSdown is applied to the non-modellable risk factor, where CS_down is the downward shock determined in accordance with Article 3(1), point (b);

—loss1 is the loss that occurs when a downward shock equal to 65CSdown is applied to the non-modellable risk factor, where CS_down is the downward shock determined in accordance with Article 3(1), point (b);

(c)where the extreme scenario of future shock for the non-modellable risk factor coincides with the upward calibrated shock determined in accordance with Article 3(1), point (b), institutions shall calculate the non-linearity coefficient in accordance with the following formula:κminmaxκmin; 1loss – 1 – 2loss0loss12loss0ɸ – 125; κmaxwhere:

—κmin0,9;

—κmax5;

—ɸ is the estimate of the tail parameter for the non-modellable risk factor calculated in accordance with Article 19;

—loss₀ is the loss that occurs when the the upward shock CS_up determined in accordance with Article 3(1), point (b) is applied to the non-modellable risk factor;

—loss – 1 is the loss that occurs when an upward shock equal to 45CSup is applied to the non-modellable risk factor, where CS_up is the upward shock determined in accordance with Article 3(1), point (b);

—loss1 is the loss that occurs when an upward shock equal to 65CSup is applied to the non-modellable risk factor, where CS_up is the upward shock determined in accordance with Article 3(1), point (b).