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Capital Requirements Regulation (CRR)
Article 325e

Article 325e - Components of the sensitivities-based method

Status
In force
Selected consolidated version from
30/09/2021
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Article 325e

Components of the sensitivities-based method

1.  

Institutions shall calculate the own funds requirement for market risk under the sensitivities-based method by aggregating the following three own funds requirements in accordance with Article 325h:

(a) 

own funds requirements for delta risk which capture the risk of changes in the value of an instrument due to movements in its non-volatility related risk factors;

(b) 

own funds requirements for vega risk which capture the risk of changes in the value of an instrument due to movements in its volatility-related risk factors;

(c) 

own funds requirements for curvature risk which capture the risk of changes in the value of an instrument due to movements in the main non-volatility related risk factors not captured by the own funds requirements for delta risk.

2.  

For the purpose of the calculation referred to in paragraph 1,

(a) 

all the positions of instruments with optionality shall be subject to the own funds requirements referred to in points (a), (b) and (c) of paragraph 1 for the risks other than exotic underlyings of the instruments as referred to in point (a) of Article 325u(2);

(b) 

all the positions of instruments without optionality shall be subject to the own funds requirements referred to in point (a) of paragraph 1 for the risks other than exotic underlyings of the instruments as referred to in point (a) of Article 325u(2).

For the purposes of this Chapter, instruments with optionality include, among others: calls, puts, caps, floors, swap options, barrier options and exotic options. Embedded options, such as prepayment or behavioural options, shall be considered to be stand-alone positions in options for the purpose of calculating the own funds requirements for market risk.

For the purposes of this Chapter, instruments whose cash flows can be written as a linear function of the underlying's notional amount shall be considered to be instruments without optionality.

3.  
By way of derogation from point (b) of paragraph 2, an institution may choose to subject all the positions of instruments without optionality to the own funds requirements referred to in points (a) and (c) of paragraph 1.

An institution that chooses to use the approach set out in the first subparagraph shall notify its competent authority thereof at least three months before the first use. After those three months have elapsed and provided that the competent authority has not objected, the institution may use that approach until the competent authority informs the institution that it is no longer permitted to do so.

An institution that wishes to stop using the approach set out in the first subparagraph shall notify its competent authority thereof at least three months before stopping that use. The institution may stop applying that approach, unless the competent authority has objected within that three-month period.

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