Adequacy of the models
Article 78
When assessing the adequacy of the models used to estimate the equity return distributions for the calculation of own funds requirements in accordance with Article 186 of Regulation (EU) No 575/2013, competent authorities shall verify that: (a) the model is appropriate for the risk profile and complexity of an institution's equity portfolio, and that where the institution has material holdings with values that are highly non-linear in nature, the model accounts for that in an appropriate manner; (b) the mapping of individual positions to proxies, market indices and risk factors is plausible, intuitive and conceptually sound; (c) the selected risk factors are appropriate and effectively cover both general and specific risk; (d) the model adequately explains the historical price variation; (e) the model captures both the magnitude of potential concentrations and changes in their composition.