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Stress Testing and Back-testing for UCITS [3]

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Bullet points include: Companies should deal appropriately with the possible vulnerability of their risk measurement techniques and models (model risk). The risk measurement framework should be subject to on-going assessment and revision, and its techniques, tools and mechanisms should be adequately documented. 38. ... Essentially, the risk management function should run documented tests to verify that model-based forecasts and estimates correspond, with the appropriate confidence level, to the actual values of the relevant risk measures (back-testing). 40. Companies should also assess in advance the validity range, market conditions and any inherent or assumed limits of their risk measurements ... if needed, through additional diligences which include stress tests.

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