PRU A6.6.8

In addition to the capital charges referred to in Rule A6.6.5, arising from Delta risk, an Authorised Person must calculate the Gamma for each Option position, including hedge positions in the following way:

(a) for each individual Option a "Gamma impact" must be calculated as:
Gamma impact = ½ × Gamma × VU2
where VU = Variation of the underlying instrument of the Option;
(b) VU must be calculated as follows:
(i) for interest rate Options if the underlying instrument is a bond, the market value of the underlying instrument should be multiplied by the risk weights set out in Section 5.4 for the underlying instrument. An equivalent calculation should be carried out where the underlying instrument is an interest rate, again based on the assumed changes in the corresponding yield in Rule A6.2.16;
(ii) for Options on equities and equity indices, the market value of the underlying instrument should be multiplied by 8%;
(iii) for foreign exchange and gold Options, the market value of the underlying instrument should be multiplied by 8%; and
(iv) for Options on commodities, the market value of the underlying instrument should be multiplied by 15%; and
(c) for the purpose of this calculation the following positions must be treated as the same underlying instrument:
(i) for interest rates, each timeband as set out in Rule A6.2.16;
(ii) for equities and stock indices, each national market;
(iii) for foreign currencies and gold, each currency pair and gold; and
(iv) for commodities, positions in the same individual commodity as defined in Section A6.5 for Commodities Risk Capital Requirement.