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Breadcrumb

  1. Home
  2. Single Rulebook Q&A
  3. 2019_4834 Calculation of supervisory delta and adjusted notional for digital options
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
17/07/2019
Rejected publishing date
11/02/2022
Rationale for rejection

Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.

If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.

For further information please refer to the press release and the updated Q&A page.

Status
Rejected question

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