(8)Article 279a(3), point (a), of Regulation (EU) No 575/2013 requires that the formula to be used for the calculation of the supervisory delta of call and put options, when mapped to the interest rate risk category, that is compatible with market conditions in which interest rates may be negative, is to be specified in accordance with international regulatory developments. On 22 March 2018, the Basel Committee on Banking Supervision (BCBS) 2 published the ‘Frequently asked questions on the Basel III standardised approach for measuring counterparty credit risk exposures’, explaining that the supervisory delta for interest rate options in the case of a negative interest rate environment should be determined in accordance with a specific formula, in which a lambda (λ) shift is applied to the spot or forward interest rate and to the strike of the option used in that formula to ensure that that spot or forward interest rate and strike of the option are positive.
Recital 8
- 2 Frequently asked questions on the Basel III standardised approach for measuring counterparty credit risk exposures, 22 March 2018. ↩