Question ID
2016_2948
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
105
Paragraph
14
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) 2016/101 - RTS for prudent valuation under Article 105(14) CRR
Article/Paragraph
9(4)(b)
Type of submitter
Competent authority
Subject matter
Valuation input consisting of a matrix of parameters
Question

For the purposes of calculating AVAs for Market Price Uncertainty, where a valuation input consists of a matrix of parameters (for example a curve or a surface), can the AVAs be calculated at the level of the matrix as a whole (i.e. the curve or surface) based on the valuation exposures related to each parameter within that matrix, rather than be calculated at the individual parameter level?

Background on the question

Where AVAs can be calculated at the level of the matrix as a whole, then the interrelationship in market price uncertainty between the constituent parameters are implicitly taken into consideration. This removes the dependency on the ratio of variance test to permit some interrelationship via netting on the basis of historical price or spread movements when AVAs are calculated at the individual parameter level. This also helps ensure that the curve or surface will be internally consistent helping to prevent issues such as implying impossible forward curve or surface constructions.

Submission date
Final publishing date
Final answer

In accordance with Article 9(4)(b) of Regulation (EU) 2016/101, where a valuation input consists of a matrix of parameters (for example a curve or surface), the AVAs for Market Price Uncertainty can be calculated at the level of the matrix as a whole (i.e. the curve or surface) rather than calculated at the individual parameter level.
This is also applicable for the calculation of close-out costs AVAs under Article 10(5)(b) of Regulation (EU) 2016/101.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

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