Question ID
2019_4834
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
279b
Paragraph
1
Subparagraph
c
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Type of submitter
Credit institution
Subject matter
Calculation of supervisory delta and adjusted notional for digital options
Question

Despite the fact that the Basel committee in its Q&A on counterparty credit risk (march 2018), has explained that the adjusted notional should be calculated by treating them as call/put spreads where the upper and lower strike levels should be modified to reflect a 5% difference up and down to the actual strik level in the trade, this approach has not been echoed in the CRR text published as of June 2019. Instead a much simpleler approach has been described which is described in article 279b 1 (c) where the digital payoff should be taken as the adjusted notional amount. Are institutions still allowed to use the Basel committee approach as described above ?

Background on the question

The problem is that many options can pricing wise be decomposed into vanilla and digital options. However this will only work out fine for the adjusted notional amount, if the digital options can be treated as call/putspreads.

Submission date
Rejected publishing date
Rationale for rejection

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Status
Rejected question