Related provisions for BIPRU 7.9.35
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The minimum size of the scenario matrix should be 3x7, that is, three observations for implied volatility (including the actual implied volatility) and seven observations for the price of the underlying (including the actual price of the underlying). A firm should be able to justify its choice of granularity. Greater granularity may be required where the portfolio contains, for example, a large proportion of barrier options.
The time horizon over which stress tests and scenario analysisshould be carried out shoulddepend on the maturity and liquidity of the positions stressed. For example, for the market risk arising from the holding of investments, this shoulddepend upon:(1) the extent to which there is a regular, open and transparent market in those assets, which would allow fluctuations in the value of the investment to be more readily and quickly identified; and(2) the extent to which the market