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Stress testing / Liquidity and funding risk [37]

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Bullet points include: We might model risk over longer horizons depending on how illiquid the individual instruments are presumed to be Assume liquid instruments rolled over frequently while illiquid or potentially illiquid instruments held for longer (e.g. through to final horizon) Used in Incremental Risk Charge (IRC) models Position values simulated in multi-step ratings-based model up to 1 year horizon Liquid positions rolled over frequently into positions with same initial rating, whilst illiquid ones rolled over less frequently C.f. refresh arguments with OIS versus LIBOR: can exit an overnight deposit with a deteriorating issuer more quickly than a term deposit

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