EBA Guidelines on Stressed Value At Risk (Stressed VaR) EBA/GL ...

would be high and that the lack of inclusion of correlations or other factors thatwould be reflected in the VaR measure does not result in rendering this proxyunsuitable.B. Review of the stressed period8. Frequency1. The requirement of the CRD, for the review of the identified 12-month period ofsignificant stress to be performed at least yearly by institutions, means that differentcircumstances, including a very high turnover in the trading book or specific tradingstrategies, may require a review of the stressed period with a higher frequency.2. Any changes to the choice of the historical period following the outcome of thereview of the stressed period should be communicated to the competent authoritybefore the intended implementation date of the proposed changes.9. Monitoring the stressed period1. In addition to the above-mentioned regular review, an institution should have inplace procedures which ensure, on an on-going basis, that the specified stressedperiod remains representative, including when ,market conditions or portfoliocompositions have been subject to significant change.2. In order to put in place sound procedures for the ongoing monitoring of therelevance of a stressed period, an institution should document the soundness of theimplemented approach. Monitoring may be based on a variety of factors which maydiffer among institutions. Factors to be considered include changes in marketconditions, in trading strategies or also in portfolio composition. These factors maybe analysed by comparing them to changes in the allocation of market values ornotionals, in risk factor loadings, in the level of VaR or sensitivities, in the repartitionof VaR or sensitivities over portfolios and risk categories, in the P&L and back-testingresults or also by the impact of newly approved products on the risk profile.3. In addition to the above-mentioned procedures, monitoring of Stressed VaRrelative to VaR should be performed on an on-going basis, because, while in theory,due to differences in parameterisation, Stressed VaR can exceptionally be smallerthan VaR, also at inception, this should not structurally be the case. The ratiobetween Stressed VaR and VaR at the moment of identification of the relevantstressed period should be used as a reference value for ongoing monitoring.Significant decreases in the ratio should be considered as indications for a potentialneed for review of a stressed period. A ratio between Stressed VaR and VaR belowone should be considered as a warning signal triggering a review of the stressedperiod.12