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> Credit Stress Testing Methodology

Credit Stress Testing Methodology

Stress Test for Credit Risk:

Frequency: Daily

Note: Day of Stress test –'S' day

The loss on closing out of client/proprietary positions is as per the following scenarios:

Hypothetical :

Price movement in respect of each underlying to the extent of 1.5 times the normal price scan range (PSR) and 1.5 times the normal volatility scan range ("VSR") is considered.
- Scenario 1: Underlying price increasing by 1.5 PSR, volatility increasing by 1.5 VSR.
- Scenario 2: Underlying price decreasing by 1.5 PSR, volatility increasing by 1.5 VSR.
Historical:

Price movement in respect of each underlying over the last 10 years is considered. The maximum percentage price movement is applied to the price on the day for which the stress test is being done
- Scenario 3: Maximum percentage rise over a period of 1 day in last 10 years
- Scenario 4: Maximum percentage fall over a period of 1 day in last 10 years

For each clearing member, the credit exposure to INDIA ICC is calculated as follows:

The time of pay-in deadline is considered as the time of stress test.
It is assumed that clearing member will default at the time of pay-in.
Loss is calculated at client portfolio level.
For each client, residual loss is calculated as follows
Residual Loss = loss due to close-out of client positions – margin supporting client positions
All residual losses (residual profits are ignored) for all clients are grossed to compute total residual losses due to client positions.
Loss due to close-out of proprietary positions is considered.
Loss at (e) and loss at (f) and the net pay-in/pay-out requirement of the clearing member (pay-in and pay-out pertaining to requirements of both S-1 and S (till pay-in time) day to be reckoned) are assessed against required margins (excluding margin supporting client positions and excess collateral, if any) and other mandatory deposits of defaulting member to calculate credit exposure of INDIA ICC to the member.

For each of the scenarios 1, 2, 3 and 4, INDIA ICC calculates the total credit exposure due to simultaneous default of at least 2 clearing members (and their associates) causing highest credit exposure