Article 13
Economic value of equity add-on for automatic interest rate options
1.
Institutions shall calculate the economic value of equity add-ons for automatic interest rate options of their non-trading book positions referred to in Article 5(3), point (a).
2.
In the case of a bought automatic interest rate option, institutions shall calculate the change in the value of that option between its value in the applicable scenario, taking into account a relative increase in the implicit interest rate volatility of 25 %, and its value in the baseline scenario.
3.
In the case of a sold automatic interest rate option, institutions shall calculate the change in the value of that option between its value in the applicable scenario and its value in the baseline scenario.
For the purposes of the first subparagraph, the change in the value shall be the difference between the following points (a) and (b):
(a)
an estimate of the value of the option for the option holder, given:
(i)
a risk-free yield curve in the applicable currency under the applicable scenario;
(ii)
a relative increase in the implicit interest rate volatility of 25 %;
(b)
the value of the interest rate option for the option holder, calculated using the non-shock yield curve and the implicit interest rate volatility in the applicable currency at the valuation date.
4.
Institutions shall calculate the economic value of equity add-on for automatic interest rate option risk as the difference between the values of all bought options calculated in accordance with paragraphs 2 and the values of all sold options calculated in accordance with paragraph 3, after having applied the scenario in a currency.
5.
For the calculation referred to in paragraphs 2 and 3, institutions shall use their applicable internal valuation methods.