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
Short in the primary risk
Instruments that are
not options or CDO
+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
"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.