This annex introduces the reference risk parameters for the market risk component of the stress-testing exercise. The stress test of the trading book requires banks to project the gains and losses on the trading book positions resulting from a broad-based financial market downturn that affects a broad set of market risk parameters: interest rates, exchange rates, equity and commodity prices, dividends and volatilities. The list of market risk parameters was agreed by the participating institutions. The gains and losses on the trading book positions are to be deducted from the net trading income accrued over the two-year horizon of the exercise. Banks are requested to apply the market risk parameters, which are provided for the baseline and the adverse macroeconomic scenarios, to their trading book positions, with the exception ofsovereign exposures, which are to be stressed through the application o f valuation haircuts. Most of the market risk parameters and all of the sovereign valuation haircuts were calibrated by the ECB to be consistent with the adverse macroeconomic scenario.
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