With regard to categories 1. and 2. set out in the background of this question, guidance is provided on how to calculate these requirements for certain instruments, both in the standardised approach or the internal models approach.

Standardised approach

In the case of the standardised approach to own funds requirements, inflation linked debt securities should be assimilated to floating rate debt instruments. These are debt instruments whose coupon is set periodically according to a relevant index, which in this case is an inflation index (such as CPI), instead of a market index (such as the EURIBOR) that a floating rate bond would follow, but its functioning is analogous. These instruments are subject to at least position risk, and therefore own funds requirements should be calculated according to Title IV, Chapter 2, Section 2 of the CRR. In particular, regarding the estimation of general risk within the standardised approach in Article 339 and 340, the calculation of own fund requirements should follow the specificities established for floating rate instruments.

Regarding derivative positions on certain "unusual" underlyings, it must be noted that some of the aforementioned underlyings can be considered as or assimilated to commodities, such as freight rate, weather derivatives or emission certificates. Following Article 358 of the CRR, derivatives on commodities are subject to commodities risk and its capital requirements have to be calculated according to Title 4, Chapter 4 of the CRR. Among other things, the requirements will depend on the kind of derivative concerned and on the notional value of the underlying. Therefore, in order to calculate these capital requirements, a notional value of the underlying is needed. This can be relatively straightforward for some of these instruments, for example, freight rates or emission certificates, for which a market value or at least a proxy for a market value can be easily found. For other derivatives, such as weather derivatives, for which there is no clear market price of the underlying, various approaches could be followed. The first choice would be to infer a quasi-market price from a pricing model, e.g. by constructing a product with similar pay-off features with an underlying for which an actual (spot or forward) price exists. Where this is not practical, other proxies might be used, such as an upper bound for the pay-off under the instrument which could be used as the "market value".

Internal models approach

When internal models are used to calculate own funds requirements, inflation-linked debt securities should be treated as debt instruments, for which a specific permission to use internal models must be granted, according to Article 363 of the CRR. Own funds requirements in this case would have to be calculated according to Title IV, Chapter 5 of the CRR, based on VaR and stressed VaR calculations, plus an Incremental Risk Capital charge when appropriate, taking into account the specificities applicable to debt instruments modelling established by the regulation.

As discussed before, in the case of derivative positions on certain "unusual" underlyings, they can be assimilated to commodities and, therefore, these commodities would fall under the category of "commodity risk" in Article 363 of the CRR, for which permission to apply internal risk models can be granted. Accordingly, capital requirements would have to be calculated according to Title IV, Chapter 5 of the CRR, based on VaR and stressed VaR calculations, taking into account the specificities applicable to commodities modelling.

DISCLAIMER:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Internal Market and Services) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.