- Bank’s 1-day static VaR measure at the 99th percentile is compared with desk’s one-day Actual P&L or Hypothetical P&L.
- An exception occurs when either the actual or hypothetical loss of the firm-wide trading book registered in a day of the backtesting period is higher than the corresponding daily risk measure given by the model.
- is then defined based on the number of exceptions generated during VaR 99% backtesting over the most recent 250 days:
|Zone||Number of exceptions||multiplier|
|Red Zone||10 or more||2|