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  • Key Requirements

    • CA-14.6.2

      The contents of this Section lay down recommendations for carrying out back-testing procedures in order to determine the accuracy and robustness of bank's internal models for measuring market risk capital requirements. These back-testing procedures typically consist of a periodic comparison of the bank's daily value-at-risk measures with the subsequent daily profit or loss ("trading outcome"). The procedure involves calculating and identifying the number of times over the prior 250 business days that observed daily trading losses exceed the bank's one-day, 99% confidence level VaR estimate (so-called "exceptions").

      Amended: January 2012
      Apr 08

    • CA-14.6.3

      Based on the number of exceptions identified from the back-testing procedures, the banks will be classified into three exception categories for the determination of the "scaling factor" to be applied to the banks' market risk measure generated by its internal models. The three categories, termed as zones and distinguished by colours into a hierarchy of responses, are listed below:

      (a) Green zone;
      (b) Yellow zone; and
      (c) Red zone.
      Amended: April 2011
      Apr 08

    • CA-14.6.4

      The green zone corresponds to back-testing results that do not themselves suggest a problem with the quality or accuracy of a bank's internal model. The yellow zone encompasses results that do raise questions in this regard, but where such a conclusion is not definitive. The red zone indicates a back-testing result that almost certainly indicates a problem with a bank's risk model.

      Apr 08

    • CA-14.6.5

      The corresponding "scaling factors" applicable to banks falling into respective zones based on their back-testing results are shown in Table 2 of the Appendix 15.

      Apr 08