Document ID: chunk:federal_register_of_legislation:F2023L00288:reg:5:p13
Version: federal_register_of_legislation:F2023L00288
Segment Type: reg
Provision Reference: reg 5 (pt 13/27)
Character Range: 59236–62032

in paragraphs 85 to 87 of Attachment B to APS 116. Total gamma impact is to be reported separately for options over interest rates, equities, foreign exchange and gold, and commodities respectively, in columns 1 to 4 of Table 8.

    1.2  Vega impact

ADIs must calculate the vega impact of each option as detailed in paragraph 88 of Attachment B to APS 116.  Total vega impact is to be reported separately for options over interest rates, equities, foreign exchange and gold, and commodities respectively, in columns 1 to 4 of Table

    1.3  Total capital charge

For columns 1 to 4, item 1.3 Total capital charge is a derived field that sums up the gamma impact and the vega impact for each category (interest rates, equities, foreign exchange and commodities).  The total charges for each category will also be captured under items 1.1.4, 1.2.3, 1.3.3 and 1.4.4 respectively of the Market risk summary table.

Tables 9-12:  Contingent loss method – General guidance

ADIs that have obtained approval from APRA to use the contingent loss method must complete Tables 9 to 12. The contingent loss method requires exclusion of the options and any associated hedges in the underlying instrument from the asset class calculations in Tables 1 to 6. Instead, a separate capital charge is determined. A scenario matrix is constructed that contains changes in the value of the options portfolio and hedges, given specified changes in underlying prices and volatility. A capital charge for general market risk is then determined by taking the largest loss that appears in the matrix.

Specific risk charges, for those options where specific risk is present, are to be separately assessed based on the delta‑equivalent amount of each option. For options with interest rate instruments as the underlying, the delta-equivalent positions must be included in the positions and capital charge calculations entered in Table 1. For equity options the delta-equivalent position must be included in Table 3 as part of the gross position for specific risk.

Table 9: Contingent loss method - Interest rate options

A different scenario matrix must be established for each time band and in each currency (refer to paragraphs 89 to 95 of Attachment B to APS 116). ADIs that have approval from APRA to do so, may base the calculation on a minimum of six sets of time bands.

An ADI should report in Table 9 as follows:

       (a)          select the relevant currency;

       (b)          for each currency, select the method used in calculating the capital charge;

       (c)          report the maximum loss figure obtained from the scenario matrix constructed      for each time band in each currency;

       (d)          sum each column to obtain a maximum loss figure for all time bands by each