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  • Calculation of weighted derivative exposures

    • CA-3.4.12

      Banks should calculate their weighted exposure under the above mentioned contracts according to the Current Exposure Method, which involves calculating the current replacement cost by marking contracts to market, thus capturing the current exposure without any need for estimation, and then adding a factor (the "add-on") to reflect the potential future exposure over the remaining life of the contract.

      The 'add-on' factor table:

        Residual maturity of contracts
      1 year or less Over 1 year to 5 years Over 5 years
      Interest rate related contracts 0.000 0.005 0.015
      Foreign exchange & gold contracts 0.010 0.050 0.075
      Equity contracts 0.060 0.080 0.100
      Precious metals (except gold) 0.070 0.070 0.070
      Other commodities 0.120 0.120 0.150

    • CA-3.4.13

      In order to reflect counterparty risk, the total credit equivalent amount, which results from the calculation in paragraph CA-3.4.12 has to be broken down again according to type of counterparty, using the same classification into types (a), (b) and (c) given in section CA-3.3. Finally, the exposure to each type of counterparty has to be weighted as 0%, 20% or 50% respectively, and the total weighted exposure calculated.