Article 377 › 3

The following risks shall be adequately captured by the model referred to in paragraph 1: (a) the cumulative risk arising from multiple defaults, including different ordering of defaults, in tranched products; (b) credit spread risk, including the gamma and cross-gamma effects; (c) volatility of implied correlations, including the cross effect between spreads and correlations; (d) basis risk, including both of the following: (i) the basis between the spread of an index and those of its constituent single names; (ii) the basis between the implied correlation of an index and that of bespoke portfolios; (e) recovery rate volatility, as it relates to the propensity for recovery rates to affect tranche prices; (f) to the extent the comprehensive risk measure incorporates benefits from dynamic hedging, the risk of hedge slippage and the potential costs of rebalancing such hedges; (g) any other material price risks of positions in the correlation trading portfolio.

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