Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p26
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 26/35)
Character Range: 93304–96047

swaptions must  set the start date Si equal to the earliest allowed exercise date, and the end date Ei equal to the end date of the underlying swap in the formulas in paragraph 25;
(e)          single payment digital or binary options with strike Ki must have the payoff approximated via a collar combination of bought and sold European options of the same type (call or put) with strikes set equal to 0.95 Ki and 1.05 Kj. The size of the position in the collar components must be such that the digital payoff is reproduced exactly outside the region between the two strikes. The effective notional for each component European option must be calculated separately using the formulas in paragraph 44 and 45 of this Attachment with Ti set equal to the exercise date of the digital option and Pi set equal to the current value of the underlying for the digital option. The absolute value of the digital option effective notional must be capped by the ratio of the digital payoff to the relevant supervisory factor. An ADI may use a different treatment in this case, subject to APRA's approval;
(f)           single payment options that can be represented as a combination of single payment European options must be decomposed and the effective notional amount for each component European option must be calculated separately; and
(g)          multi-payment options may be represented as a combination of single payment options for the purpose of effective notional calculations. If the multi-payment option is decomposed, then the effective notional amount for each component option must be calculated separately. Interest rate caps and floors may be represented as a portfolio of individual caplets and floorlets, where each caplet or floorlet is treated as a European option on the floating interest rate over a specific coupon period. For each caplet or floorlet, the start date Si and exercise date Ti must be set equal to the start of the coupon period, while the end date Ei must be set equal to the end of the coupon period.

Maturity Factor
48.         The maturity factor is set differently for margined and unmargined transactions.  When the SA-CCR methodology is used by a clearing member ADI, the clearing member ADI must determine the MPOR and the maturity factor in conjunction with the requirements of paragraphs 12 and 19 of Attachment B of this Prudential Standard.
(a)          For an unmargined transaction, the maturity factor MFi must be set as:
       where:
       Mi is the maturity date for transaction i as defined in paragraph 21 of this Attachment, subject to a floor of 10 business days.
(b)          For a margined transaction, the maturity factor MFi must be set as:
       where:
       MPORi represents the margin