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PIB A5.6.8

In addition to the capital charges referred to in PIB Rule A5.6.5, arising from Delta risk, an Authorised Firm must calculate the Gamma for each option position, including hedge positions in the following way:

(a) for each individual option a "Gamma impact" must be calculated as:

Gamma impact = ½ x Gamma x VU2

where VU = Variation of the underlying instrument of the option;
(b) VU must be calculated as follows:
(i) for interest rate options if the underlying instrument is a bond, the market value of the underlying instrument should be multiplied by the risk weights set out in PIB section 5.4 for the underlying instrument. An equivalent calculation should be carried out where the underlying instrument is an interest rate, again based on the assumed changes in the corresponding yield in PIB Rule A5.2.16;
(ii) for options on equities and equity indices, the market value of the underlying instrument should be multiplied by 8%;
(iii) for foreign exchange and gold options, the market value of the underlying instrument should be multiplied by 8%; and
(iv) for options on commodities, the market value of the underlying instrument should be multiplied by 15%; and
(c) for the purpose of this calculation the following positions must be treated as the same underlying instrument:
(i) for interest rates, each timeband as set out in PIB Rule A5.2.16;
(ii) for equities and stock indices, each national market;
(iii) for foreign currencies and gold, each currency pair and gold; and
(iv) for commodities, positions in the same individual commodity as defined in PIB section A5.5 for Commodities Risk Capital Requirement.
Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]