Article 383b
Own funds requirements for delta and vega risks
1.
Institutions shall apply the delta and vega risk factors described in Articles 383c to 383h, and the process set out in paragraphs 2 to 8 of this Article, to calculate the own funds requirements for delta and vega risks.
2.
For each risk class referred to in Article 383(2), the sensitivity of the aggregate CVAs and the sensitivity of all positions in eligible hedges falling within the scope of the own funds requirements for delta or vega risk to each of the applicable delta or vega risk factors included in that risk class shall be calculated by using the corresponding formulae set out in Articles 383i and 383j. Where the value of an instrument depends on several risk factors, the sensitivity shall be determined separately for each risk factor.
For the calculation of the vega risk sensitivities of the aggregate CVAs, sensitivities both to volatilities used in the exposure model to simulate risk factors and to volatilities used to reprice option transactions in the portfolio with the counterparty shall be included.
By way of derogation from paragraph 1 of this Article, subject to the permission of the competent authority, an institution may use alternative definitions of delta and vega risk sensitivities in the calculation of the own funds requirements of a trading book position under this Chapter, provided that the institution meets all of the following conditions:
(a)
those alternative definitions are used for internal risk management purposes or for the reporting of profits and losses to senior management by an independent risk control unit within the institution;
(b)
the institution demonstrates that those alternative definitions are more appropriate for capturing the sensitivities of the position than the formulae set out in Articles 383i and 383j, and that the resulting delta and vega risk sensitivities do not materially differ from the ones obtained applying the formulae set out in Articles 383i and 383j, respectively.
3.
Where an eligible hedge is an index instrument, institutions shall calculate the sensitivities of that eligible hedge to all relevant risk factors by applying the shift of one of the relevant risk factors to each of the index constituents.
4.
An institution may introduce additional risk factors that correspond to qualified index instruments for the following risk classes:
(a)
counterparty credit spread risk;
(b)
reference credit spread risk; and
(c)
equity risk.
For the purposes of delta risks, an index instrument shall be considered qualified where it meets the conditions set out in Article 325i. For vega risks, all index instruments shall be considered qualified.
An institution shall calculate sensitivities of CVA and eligible hedges to qualified index risk factors in addition to sensitivities to the non-index risk factors.
An institution shall calculate delta and vega risk sensitivities to a qualified index risk factor as a single sensitivity to the underlying qualified index. Where 75 % of the constituents of a qualified index are mapped to the same sector as set out in Articles 383p, 383s and 383v, the institution shall map the qualified index to that same sector. Otherwise, the institution shall map the sensitivity to the applicable qualified index bucket.
5.
The weighted sensitivities of the aggregate CVA and of the market value of all eligible hedges to each risk factor shall be calculated by multiplying the respective net sensitivities by the corresponding risk weight, in accordance with the following formulae:
where:
|
k |
= the index that denotes the risk factor k; |
|
|
= the weighted sensitivity of the aggregate CVA to risk factor k; |
|
RWk |
= the risk weight applicable to the risk factor k; |
|
|
= the net sensitivity of the aggregate CVA to risk factor k; |
|
|
= the weighted sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k; |
|
|
= the net sensitivity of the market value of all eligible hedges in the CVA portfolio to risk factor k. |
6.
Institutions shall calculate the net-weighted sensitivity WSk of the CVA portfolio to risk factor k in accordance with the following formula:
7.
The net-weighted sensitivities within the same bucket shall be aggregated in accordance with the following formula, using the corresponding correlations ρkl to weighted sensitivities within the same bucket set out in Articles 383l, 383t and 383q giving rise to the bucket-specific sensitivity Kb :
where:
|
Kb |
= the bucket-specific sensitivity of bucket b; |
|
WSk |
= the net-weighted sensitivities; |
|
ρkl |
= the corresponding intra-bucket correlation parameters; |
|
R |
= the hedging disallowance parameter equal to 0,01 . |
8.
The bucket-specific sensitivity shall be calculated in accordance with paragraphs 5, 6 and 7 of this Article for each bucket within a risk class. Once the bucket-specific sensitivity has been calculated for all buckets, weighted sensitivities to all risk factors across buckets shall be aggregated in accordance with the following formula, using the corresponding correlations γbc for weighted sensitivities in different buckets set out in Articles 383l, 383o, 383r, 383u, 383w and 383z giving rise to the risk-class specific own funds requirements for delta or vega risk:
where:
|
mCVA |
= a multiplier factor which is equal to 1; the competent authority may increase the value of mCVA where the institution’s regulatory CVA model shows deficiencies preventing the appropriate measurement of the own funds requirements for CVA risk; |
|
Kb |
= the bucket-specific sensitivity of bucket b; |
|
γbc |
= the correlation parameter between buckets b and c; |
|
|
for all risk factors in bucket b; |
|
|
for all risk factors in bucket c. |
