Recital 2

(2)Chapter CRE52 of the Basel Framework, adopted by the Basel Committee on Banking Supervision (BCBS) ² , sets out the standardised approach for counterparty credit risk (SA-CCR). Within that Chapter, point 52.40 specifies the formula that institutions are to use to calculate the supervisory delta of call and put options mapped to a specific risk category. Question 2 to that point 52.40 raises the issue of how the supervisory delta for options should be calculated when the term P/K is zero or negative such that the term ln(P/K) cannot be calculated, for example in a negative interest rate environment. The BCBS has answered to that question that, in such cases, credit institutions are to use a slightly different formula to calculate the supervisory delta of call and put options, i.e. they should incorporate into that formula a shift in the price value and strike value of the options concerned by adding lambda (‘λ’), where λ should represent the presumed lowest possible extent to which interest rates in the respective currency can become negative. A similar approach should be followed in the case of the supervisory delta of call and put options mapped to the commodity risk category, in situations where commodity prices may be negative. The λ shift should be large enough to enable credit institutions to calculate the supervisory delta of an option mapped to the commodity risk category in accordance with the formula laid down in Article 279a(1) of Regulation (EU) No 575/2013, but at the same time small enough not to introduce unnecessary bias in the outcome of the supervisory delta calculation.