- Question ID
-
2022_6577
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Market risk
- Article
-
329
- Paragraph
-
2
- 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
-
5
- Name of institution / submitter
-
Wolters Kluwer
- Country of incorporation / residence
-
Romania
- Type of submitter
-
Consultancy firm
- Subject matter
-
Determination of own funds requirements for convexity risk ('gamma risk'), according to the Delta plus approach, for options positions in Exchange traded funds with multiple sector components
- Question
-
How should the own funds requirement for convexity risk ('gamma risk') be calculated, for options positions on Exchange traded funds, when the component of the fund are from across several sectors?
- Background on the question
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In case of Options on Exchange traded funds, as the underlying components of an ETF may be from across several sectors, it is not possible to equate them to a single classification such as equity, commodity, etc.
The EBA FINAL draft Regulatory Technical Standards "On non-delta risk of options in the standardized market risk approach under Articles 329(3), 352(6) and 358(4) of Regulation (EU) No 575/2013 (Capital Requirements Regulation -CRR)" references 4 types of underlyings (Interest Rates, Equities, Foreign Exchange and Gold, Commodities) but does not reference ETFs.In case the method for calculating non delta risks is Delta plus, the same regulation says to calculate a Gamma impact as being equal to ½* Gamma* VU2 where the calculation of VU depends on the underlying asset of the option - the regulation says that, in case of interest rates, VU is equal to the assumed change in yield indicated in column 5 of Table 2 of Article 339 of Regulation (EU) No 575/2013; for equity options VU is the market value of the underlying multiplied by the weighting indicate in Article 343 of Regulation (EU) No 575/2013; for commodity options 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. Since the ETF is not a simple Interest rate product, nor an Equity, a Foreign exchange or a Commodity one, but rather can be a combination of these, it is not clear how the VU should be calculated, when the underlying of the option is an ETF that has Interest rate, Equity, Foreign exchange and Commodity positions in it.
- Submission date
- Rejected publishing date
-
- Rationale for rejection
-
This question has been rejected because the matter it refers to has been answered in Q&A 2692.
- Status
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Rejected question