Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Market risk
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
Disclose name of institution / entity:
Type of submitter:
Subject Matter:
Section 3: Delta Plus Approach

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^= $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. 

Date of submission:
Published as Rejected Q&A
Rationale for rejection:

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Rejected question