exchange prices in a liquid market;

trades in the exact same or very similar instrument, either from the institution's own records or, where available, trades from across the market;

tradable quotes from brokers and other market participants;

consensus service data;

indicative broker quotes;

counterparty collateral valuations.

the use of proxy data based on similar instruments for which sufficient data is available;

the application of prudent shifts to valuation inputs;

the identification of natural bounds to the value of an instrument.

they shall calculate AVAs for each of the categories described in paragraphs 10 and 11 of Article 105 of Regulation (EU) No 575/2013 (‘category level AVAs’) according to paragraph 2 of this Article;

they shall sum the amounts resulting from point (a) for each of the category level AVAs to provide the total AVAs for the purposes of Article 1.

according to Articles 9 to 17;

where the application of Articles 9 to 17 is not possible for certain positions, according to a ‘fall-back approach’, whereby they shall identify the related financial instruments and calculate an AVA as the sum of the following:

the institution has firm evidence of a tradable price for a valuation exposure or a price can be determined from reliable data based on a liquid two-way market as described in the second subparagraph of Article 338(1) of Regulation (EU) No 575/2013;

the sources of market data set out in Article 3(2) do not indicate any material valuation uncertainty.

The granularity at which those AVAs shall be assessed shall be one of the following:

Each of the valuation inputs referred to in point (a)(i) shall be treated separately. Where a valuation input consists of a matrix of parameters, AVAs shall be calculated based on the valuation exposures related to each parameter within that matrix. Where a valuation input does not refer to tradable instruments, institutions shall map the valuation input and the related valuation exposure to a set of market tradable instruments. Institutions may reduce the number of parameters of the valuation input for the purpose of calculating AVAs using any appropriate methodology provided the reduced parameters satisfy all of the following requirements:

For the purposes of this paragraph, ‘variance measure 1’ shall mean profit and loss variance of the valuation exposure based on the unreduced valuation input and ‘variance measure 2’ shall mean profit and loss variance of the valuation exposure based on the unreduced valuation input minus the valuation exposure based on the reduced valuation input.

Where a reduced number of parameters is used for the purpose of calculating AVAs, the determination that the criteria set out in point (b) are met shall be subject to independent control function review of the netting methodology and internal validation on at least an annual basis.

where sufficient data exists to construct a range of plausible values for a valuation input:

where insufficient data exists to construct a plausible range of values for a valuation input, institutions shall use an expert-based approach using qualitative and quantitative information available to achieve a level of certainty in the prudent value of the valuation input that is equivalent to that targeted under point (a). Institutions shall notify competent authorities of the valuation exposures for which this approach is applied, and the methodology used to determine the AVA;

institutions shall calculate the market price uncertainty AVA based on one of the following approaches:

The granularity at which those close-out costs AVAs shall be assessed shall be one of the following:

Each of the valuation inputs each of the valuation inputs referred to in point (a)(i) shall be treated separately. Where a valuation input consists of a matrix of parameters, institutions shall assess the close-out cost AVA based on the valuation exposures related to each parameter within that matrix. Where a valuation input does not refer to tradable instruments, institutions shall explicitly map the valuation input and the related valuation exposure to a set of market tradable instruments. Institutions may reduce the number of parameters of the valuation input for the purpose of calculating AVAs using any appropriate methodology provided the reduced parameters satisfy all of the following requirements:

For the purposes of this paragraph, variance measure 1 shall mean profit and loss variance of the valuation exposure based on the unreduced valuation input and variance measure 2 shall mean profit and loss variance of the valuation exposure based on the unreduced valuation input minus the valuation exposure based on the reduced valuation input.

Where a reduced number of parameters is used for the purpose of calculating AVAs, the determination that the criteria set out in point (b) are met shall be subject to independent control function review and internal validation on at least an annual basis.

where sufficient data exists to construct a range of plausible bid-offer spreads for a valuation input, institutions shall estimate a point within the range where they are 90 % confident that the spread they could achieve in exiting the valuation exposure would be at that price or better;

where insufficient data exists to construct a plausible range of bid-offer spreads, institutions shall use an expert-based approach using qualitative and quantitative information available to achieve a level of certainty in the prudent value that is equivalent to that targeted where a range of plausible values is available. Institutions shall notify competent authorities of the valuation exposures for which this approach is applied, and the methodology used to determine the AVA;

institutions shall calculate the close-out costs AVA by applying 50 % of the estimated bid-offer spread calculated in accordance with either point (a) or point (b) to the valuation exposures related to the valuation inputs defined in paragraph 5.

complexity of products relevant to the model;

diversity of possible mathematical approaches and model parameters, where those model parameters are not related to market variables;

the degree to which the market for relevant products is ‘one way’;

the existence of unhedgeable risks in relevant products;

the adequacy of the model in capturing the behaviour of the pay-off of the products in the portfolio.

the AVAs calculated using the method described in paragraph 4, if it were applied to a material sample of the valuation models for which the institution applies the method in paragraph 3; and

the AVAs produced by the method in paragraph 3 for the same sample of valuation models.

they shall identify concentrated valuation positions;

for each identified concentrated valuation position, where a market price applicable for the size of the valuation position is unavailable, they shall estimate a prudent exit period;

where the prudent exit period exceeds 10 days, they shall estimate an AVA taking into account the volatility of the valuation input, the volatility of the bid offer spread and the impact of the hypothetical exit strategy on market prices.

the size of all valuation positions relative to the liquidity of the related market;

the institution's ability to trade in that market;

the average daily market volume and typical daily trading volume of the institution.

Institutions shall establish and document the methodology applied to determine concentrated valuation positions for which a concentrated positions AVA shall be calculated.

the range of methodologies for quantifying AVAs for each valuation position;

the hierarchy of methodologies for each asset class, product, or valuation position;

the hierarchy of market data sources used in the AVA methodology;

the required characteristics of market data to justify a zero AVA for each asset class, product, or valuation position;

the methodology applied where an expert based approach is used to determine an AVA;

the methodology for determining whether a valuation position requires a concentrated position AVA;

the assumed exit horizon for the purpose of calculating AVAs for concentrated positions, where relevant;

the fair-valued assets and liabilities for which a change in accounting valuation has a partial or zero impact on CET1 capital according to Article 4(2) and Article 8(1).

at least an annual review of valuation model performance;

management sign-off on all significant changes to valuation policies;

a clear statement of the institution's risk appetite for exposure to positions subject to valuation uncertainty which is monitored at an aggregate institution-wide level;

independence in the valuation process between risk taking and control units;

a comprehensive internal audit process related to valuation processes and controls.

a precisely defined institution-wide product inventory, ensuring that every valuation position is uniquely mapped to a product definition;

valuation methodologies, for each product in the inventory covering choice and calibration of model, fair value adjustments, AVAs, independent price verification methodologies applicable to the product, and the measurement of valuation uncertainty;

validation process ensuring that, for each product, both the risk-taking and relevant control departments approve the product-level methodologies described in point (b) and certify that they reflect the actual practice for every valuation position mapped to the product;

defined thresholds based on observed market data for determining when valuation models are no longer sufficiently robust;

a formal IPV process based on prices independent from the relevant trading desk;

a new product approval processes referencing the product inventory and involving all internal stakeholders relevant to risk measurement, risk control, financial reporting and the assignment and verification of valuations of financial instruments;

a new deal review process to ensure that pricing data from new trades are used to assess whether valuations of similar valuation exposures remain appropriately prudent.