Question ID
2022_6485
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
329 (3),352 (6), 358 (4)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) No 528/2014 - RTS on non-delta risk of options in the standardised market risk approach
Article/Paragraph
4
Type of submitter
Individual
Subject matter
Section 3: Delta Plus Approach
Question

I’m using the delta-plus approach to calculate our own funds requirement for gamma risk which seems to be generating an excessive capital requirement relative to the overall notional value of the option contract.

Using the example of a short call commodities option.

Position:        -1000

K Strike ($):     3490

Delta:             -0.4072933

Gamma:         -0.005789126

Underlying ($): 3319

The formula to apply is as follows:

VU: for commodity options or warrants is equal to the market value of the underlying, multiplied by the weighting indicated in point (a) of Article 360.1 of Regulation Regulation (EU) No 575/2013

Weighting:  15%

VU = (1000 x -0.4072933) x 3319 x 0.15 = -$202,770

Gamma Risk = 0.5 x -0.005789126 x 202770^2  = $119,013,043

Notional Value of Contract = -1000 x 3490 = $3,490,000

GR/NVC Multiple = 34.1 or 3410%

Please can you confirm my application of Annex1 – Formula to be used for the purposes of Article 5(2).

Background on the question

I'm trying to understand whether I'm calculating the own funds requirement for gamma risk correctly (K-NPR). I have attached an excel version of my calculation. 

Submission date
Rejected publishing date
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Status
Rejected question