• PRU A4.6.31 PRU A4.6.31

    The Authorised Person must include the following supervisory delta adjustments in the calculation of the relevant add-on where relevant.

    δi Long in the primary risk
    factor
    Short in the primary risk
    factor
    Instruments that are
    not options or CDO
    tranches
    +1 -1
    δi Bought Sold
    Call options
    Put options
    With the following parameters:

    Pi = underlying price (spot, forward, average etc.)

    Ki = strike price

    Ti = latest contractual exercise date of the option

    The supervisory volatility σi of an option is specified on the basis of the supervisory factor applicable to the trade in accordance with the table set out in A4.6.34.

    δi Purchased (long protection) Sold (short protection)
    CDO tranches
    With the following parameters:

    Ai = attachment point of the CDO tranche

    Di = detachment point of the CDO tranche

    • Guidance

      "Long in the primary risk factor" means that the market value of the instrument increases, whereas "short in the primary risk factor" means that the market value of the instrument decreases when the value of the primary risk factor increases. The symbol Φ in these equations represents the standard normal cumulative distribution function.