AI Summary of Article 284 Exposure value
This document outlines the requirements for institutions using the Internal Model Method (IMM) to calculate counterparty credit risk (CCR) exposure values. Institutions must evaluate exposure at the netting set level, incorporating a model that forecasts joint changes in relevant market variables. The collateral value model must meet specified criteria, allowing only eligible financial collateral in the forecasting distributions.
Moreover, the own funds requirement is determined based on Effective Expected Positive Exposure (EPE), necessitating accurate calculations and documentation of the alpha parameter. Institutions are expected to regularly review and validate these estimates, ensuring they capture significant dependencies and adhere to prudent risk management practices.
Article 284 Exposure value
1. Where an institution is permitted, in accordance with Article 283(1), to use the IMM to calculate the exposure value of some or all transactions mentioned in that paragraph, it shall measure the exposure value of those transactions at the level of the netting set.
The model used by the institution for that purpose shall:
(a) specify the forecasting distribution for changes in the market value of the netting set attributable to joint changes in relevant market variables, such as interest rates, foreign exchange rates;
(b) calculate the exposure value for the netting set at each of the future dates on the basis of the joint changes in the market variables.