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  • 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.

      • Guidance

        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.

    • PRU A4.6.45

      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.

    • PRU A4.6.46

      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.