Formula for Method 1
APVA = (FV – PV) – α · (FV – PV) = (1 – α) · (FV – PV) |
AVA = Σ APVA |
Formula for Method 2
APVA = max {0, (FV – PV) – α · (EV – PV)} = max {0, FV – α · EV – (1 – α) · PV} |
AVA = Σ APVA |
Where:
FV = The valuation exposure-level fair value after any accounting adjustment applied in the institution’s fair value that can be identified as addressing the same source of valuation uncertainty as the relevant AVA, |
PV = The valuation exposure-level prudent value determined in accordance with this Regulation, |
EV = The expected value at a valuation exposure level taken from a range of possible values, |
α = The aggregation factor, |
APVA = The valuation exposure-level AVA after adjusting for aggregation, |
AVA = The total category-level AVA after adjusting for aggregation. |
Institutions shall set the aggregation factor ‘α’ at 66 % until 31 December 2020, after which they shall set the aggregation factor at 50 %.’