PART THREE CAPITAL REQUIREMENTS

TITLE IV OWN FUNDS REQUIREMENTS FOR MARKET RISK

CHAPTER 5 Use of internal models to calculate own funds requirements

Section 3 Requirements particular to specific risk modelling

Article 370 Requirements for modelling specific risk
An internal model used for calculating own funds requirements for specific risk and an internal model for correlation trading shall meet the following additional requirements:
(a) it explains the historical price variation in the portfolio;
(b) it captures concentration in terms of magnitude and changes of composition of the portfolio;
(c) it is robust to an adverse environment;
(d) it is validated through back-testing aimed at assessing whether specific risk is being accurately captured. If the institution performs such back-testing on the basis of relevant sub-portfolios, these shall be chosen in a consistent manner;
(e) it captures name-related basis risk and shall in particular be sensitive to material idiosyncratic differences between similar but not identical positions;
(f) it captures event risk.
Substituted by Corrigendum to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).