Exposure Normalization and Look-Through

Overview

This calculator implements an atomistic Article 84 exposure pre-processing step for Pillar 1 market and counterparty calculators.^[1] It normalizes direct holdings, fund-wrapped exposures, derivatives, collateral effects, CQS weighting, issuer grouping, and exemption status into a single downstream-ready normalized exposure amount.

Input Terms

• Direct Asset Exposure: Exposure already held outside collective-investment wrappers.
• Fund Wrapper and Look-Through Inputs: Fund value, resolved underlying exposure, look-through availability flag, and fallback stress basis when full look-through is unavailable.
• Equity SA Fallback Inputs: The equity symmetric adjustment and Article 172 corridor regime used to floor unknown fund fallback treatment at Type 2 equity stress.
• Derivative Conversion Inputs: Notional and delta factor for translating derivatives into exposure-equivalent terms.
• Collateral and Weighting Inputs: Recognized collateral, CQS risk weight, and issuer-grouping adjustment.
• Exemption Flag: Binary control to remove exempted amounts from downstream risk charging.

Technical Rationale

The calculator first selects the effective fund contribution by applying look-through where available and falling back to a stressed proxy when it is not. For unknown equity fund components, the fallback stress is floored at the Type 2 equity shock plus the bounded symmetric adjustment, so missing underlying data cannot reduce the downstream equity charge. It then adds direct holdings and delta-adjusted derivative exposure, subtracts recognized collateral, and applies risk weighting and issuer grouping adjustments to create a consistent exposure basis. Finally, it applies an exemption gate and outputs the normalized exposure value intended for downstream risk calculators.

Important Notes

• Scope: This is a canonical exposure-normalization calculator, not a full market SCR aggregation.
• Leveraged funds: Leveraged investment funds should be processed through the standalone Leveraged Fund Look-Through calculator where the EIOPA 2026 leveraged-fund treatment is needed. This keeps the fund leverage calculation separate from general exposure normalization.
• No live feeds required: The calculator works with user-provided inputs, but the equity fallback floor should use the same governed EIOPA symmetric-adjustment value as the downstream equity-risk engine.
• Fallback floor breach: If the supplied fallback stress is below the Type 2 equity floor, the engine uses the floor and raises a breach flag for audit visibility.
• Downstream use: The normalized exposure output is designed to feed other atomistic calculators (equity, spread, currency, concentration, and counterparty chains) instead of duplicating their risk-charge logic.