Document ID: chunk:federal_register_of_legislation:F2023L01599:reg:6:p18
Version: federal_register_of_legislation:F2023L01599
Segment Type: reg
Provision Reference: reg 6 (pt 18/35)
Character Range: 72366–75569

asset classes (e.g. multi-asset or hybrid derivative transactions), an ADI must:
(a)          measure and record the sensitivities and volatilities of each risk factor of that transaction;
(b)          repeat the process at regular intervals or when substantial market movements take place; and
(c)          assign the transaction to:
(i)            a single asset class where the ADI has determined that the transaction has a primary risk factor that is the clear main driver of profit and loss (P&L) volatility based on sensitivities and risk factor volatilities; or
(ii)         all applicable asset classes where the transaction does not have a primary risk factor and multiple risk factors are significant drivers of P&L volatility based on sensitivities and risk factor volatilities, except where APRA has granted approval to assign the transaction to a single asset class.

Definition and notation of key parameters
21.         An ADI must use the definitions in Table 3 and paragraphs 42 to 49 of this Attachment when calculating the PFE add-ons. Transaction-level parameters are denoted with subscript i representing transaction i.[35]
Table 3: Definition of transaction-level and supervisory parameters
Symbol  Parameter                          Definition
dia     Adjusted notional amount           The transaction-level adjusted notional amount for transaction i belonging to asset class a.
        (refer to paragraph 42)
MFi     Maturity factor                    A multiplier used in determining the effective notional amount for transaction i. The maturity factor is calculated differently for margined and unmargined transactions.
        (refer to paragraph 48)
ẟi      Supervisory delta adjustment       A transaction-level supervisory delta adjustment reflecting the direction and non-linearity of transaction i.
        (refer to paragraphs 43 to 47)
pa      Supervisory correlation parameter  A supervisory parameter specifying the weight between systematic and idiosyncratic components in the one-factor model used in the credit, equity and commodity asset classes only.
        (refer to paragraph 49)
SFa     Supervisory factor                 A factor or factors specific to each asset class used to convert the effective notional amount into Effective expected positive exposure (Effective EPE) based on the measured volatility of the asset class.
        (refer to paragraph 49)
Mi      Maturity date                      The time interval between the calculation date (today) and the latest date when transaction i may still be active, measured in years. If transaction i has another derivative contract as its underlying (e.g. a swaption) and may be physically exercised into the underlying contract (i.e. an ADI would assume a position in the underlying contract in the event of exercise), then Mi must be set as the time interval between the calculation date and the final settlement date of the underlying derivative contract.
Si      Start date                         The time interval between the calculation date (today) and the start date of the time period referenced by transaction i, measured in years. The time period referenced by transaction i is subject to a