Article 225 › 3

The estimation of volatility adjustments shall meet all the following qualitative criteria: (a) an institutions shall use the volatility estimates in the day-to-day risk management process including in relation to its internal exposure limits; (b) where the liquidation period used by an institution in its day-to-day risk management process is longer than that set out in this Section for the type of transaction in question, that institution shall scale up its volatility adjustments in accordance with the square root of time formula set out in point (c) of paragraph 2; (c) an institution shall have in place established procedures for monitoring and ensuring compliance with a documented set of policies and controls for the operation of its system for the estimation of volatility adjustments and for the integration of such estimations into its risk management process; (d) an independent review of the institution's system for the estimation of volatility adjustments shall be carried out regularly within the institution's own internal auditing process. A review of the overall system for the estimation of volatility adjustments and for the integration of those adjustments into the institution's risk management process shall take place at least once a year. The subject of that review shall include at least the following: (i) the integration of estimated volatility adjustments into daily risk management; (ii) the validation of any significant change in the process for the estimation of volatility adjustments; (iii) the verification of the consistency, timeliness and reliability of data sources used to run the system for the estimation of volatility adjustments, including the independence of such data sources; (iv) the accuracy and appropriateness of the volatility assumptions.

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Source: EUR-Lex CELLAR · retrieved 2026-09-04