Chapter 4, Article 18 · Commission Delegated Regulation (EU) 2024/397

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Article 18Non-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 κ1 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:κminmaxκmin; 1loss – 1 – 2loss0loss12loss0ɸmedian – 125; κmaxwhere:

—κmin0,9;

—κmax5;

—ɸmedian 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;

—loss – 1 is the loss occurring when the corresponding downward shock determined in accordance with Article 6(1), point (b), multiplied by 45 is applied to each risk factor in the non-modellable bucket;

—loss1 is the loss occurring when the corresponding downward shock determined in accordance with Article 6(1), point (b), multiplied by 65 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:κminmaxκmin; 1loss – 1 – 2loss0loss12loss0ɸmedian – 125; κmaxwhere:

—κmin0,9;

—κmax5;

—ɸmedian 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;

—loss – 1 is the loss occurring when the corresponding upward shock determined in accordance with Article 6(1), point (b), multiplied by 45 is applied to each risk factor in the non-modellable bucket;

—loss1 is the loss occurring when the corresponding upward shock determined in accordance with Article 6(1), point (b), multiplied by 65 is applied to each risk factor in the non-modellable bucket.