Add - On For Credit Derivatives
A4.6.44 PRU A4.6.44
All credit derivatives referencing the same entity may be offset fully to form an entity-level effective notional amount:
where i ε Entityk refers to trades of Entityk.
The effect of this formula is that the effective notional for each entity is the sum of the trade-level adjusted notional amounts multiplied by the supervisory delta adjustments and the maturity factor.
The add-on for all positions referencing the entity is determined in accordance with the following formula:
𝐴𝑑𝑑𝑂𝑛(𝐸𝑛𝑡𝑖𝑡𝑦𝑘) = 𝑆𝐹𝑘(𝐶𝑟𝑒𝑑𝑖𝑡)∗ 𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒𝑁𝑜𝑡𝑖𝑜𝑛𝑎𝑙𝑘(𝐶𝑟𝑒𝑑𝑖𝑡)
where SFk is the supervisory factor for the credit asset class, determined in accordance with the table set out in A4.6.36.
The cumulative add-on for the credit derivatives hedging set is determined in accordance with the following formula:
where ρ (credit)k is the appropriate correlation factor corresponding to the entity k, determined in accordance with the table set out in A4.6.36.