PRU A6.6.3

An Authorised Person using the Simplified Approach must treat the positions for the Options and the associated underlying instrument, cash or forward, and calculate the capital charge for each position, by reference to the following table:

Position Treatment
Long cash and long put or short cash and long call. The capital charge is the market value of the underlying instrument multiplied by the sum of Specific and General Market Risk percentages for the underlying Instrument less the amount the Option is in the money, if any, bounded at zero.
Long call or long put. The capital charge will be the lesser of:
•   the market value of the underlying instrument multiplied by the sum of Specific and General Market Risk percentages for the underlying instrument; or
•   the market value of the Options.