CA-5.3.12

For hedged exposures to be treated within the scope of the double default framework, capital requirements may be calculated according to paragraphs CA-5.3.13 to CA-5.3.16.

CA-5.3.13

The capital requirement for a hedged exposure subject to the double default treatment (K_DD) is calculated by multiplying K₀ as defined below by a multiplier depending on the PD of the protection provider (PD_g):

K_DD = K₀ . ( 0.15 + 160 . PD_g)

CA-5.3.14

K₀ is calculated in the same way as a capital requirement for an unhedged corporate exposure (as defined in paragraphs CA-5.3.3 and CA-5.3.4), but using different parameters for LGD and the maturity adjustment.

CA-5.3.15

PDo and PDg are the probabilities of default of the obligor and guarantor, respectively, both subject to the PD floor set out in paragraph CA-5.3.17. The correlation Pos is calculated according to the formula for correlation (R) in paragraph CA-5.3.3 (or, if applicable, paragraph CA-5.3.4), with PD being equal to PDo, and LGDg is the LGD of a comparable direct exposure to the guarantor (i.e. consistent with paragraph CA-5.3.29, the LGD associated with an unhedged facility to the guarantor or the unhedged facility to the obligor, depending upon whether in the event both the guarantor and the obligor default during the life of the hedged transaction available evidence and the structure of the guarantee indicate that the amount recovered would depend on the financial condition of the guarantor or obligor, respectively; in estimating either of these LGDs, a bank may recognise collateral posted exclusively against the exposure or credit protection, respectively, in a manner consistent with paragraphs CA-5.3.31 or CA-5.3.8 and CA-5.8.79 to CA-5.8.83, as applicable). There may be no consideration of double recovery in the LGD estimate. The maturity adjustment coefficient b is calculated according to the formula for maturity adjustment (b) in paragraph CA-5.3.3, with PD being the minimum of PDo and PDg M is the effective maturity of the credit protection, which may under no circumstances be below the one-year floor if the double default framework is to be applied.

CA-5.3.16

The risk-weighted asset amount is calculated in the same way as for unhedged exposures, i.e

RWA_DD = K_DD × 12.5 × EAD_g