Emerging Practices for Capital Adequacy © Copyright 2003, CCRO. All rights reserved. 25 differences between trading and non-trading activities. For example, one-day VaR-type metrics may be relevant for reporting market risk for actively traded portfolios, but not for longer-lived assets or buy-and-hold business activities. Moreover, the longer time horizon associated with non- trading activities often requires modeling non-observable prices, operational constraints, hedging strategies and other forms of management intervention not typically associated with trading activities. Note that accounting for these complexities will likely necessitate the use of simulation models. When incorporating non-trading activities into the capital adequacy calculation, it is especially important to be explicit about assumptions made regarding the management of long-lived assets. For example, even though a merchant plant may not currently be hedged beyond a certain number of years, management might consider calculating economic capital based on the assumption that anticipated hedging strategies and other forms of management intervention are actually going to be executed. Clearly, such an assumption could have a material impact on the calculation and must therefore be made explicit. Moreover, the rationale for making such assumption should also be made transparent.