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  • Derivatives

    • CA-12.2.3

      All commodity derivatives and off-balance-sheet positions which are affected by changes in commodity prices should be included in the measurement framework for commodities risks. This includes commodity futures, commodity swaps, and options where the "delta plus" method is used71. In order to calculate the risks, commodity derivatives are converted into notional commodities positions and assigned to maturities as follows:

      (a) Futures and forward contracts relating to individual commodities should be incorporated in the measurement framework as notional amounts of barrels, kilograms etc., and should be assigned a maturity with reference to their expiry date;
      (b) Commodity swaps where one leg is a fixed price and the other one is the current market price, should be incorporated as a series of positions equal to the notional amount of the contract, with one position corresponding to each payment on the swap and slotted into the maturity time-bands accordingly. The positions would be long positions if the bank is paying fixed and receiving floating, and short positions if vice versa. (If one of the legs involves receiving/paying a fixed or floating interest rate, that exposure should be slotted into the appropriate repricing maturity band for the calculation of the interest rate risk, as described in chapter CA-9); and
      (c) Commodity swaps where the legs are in different commodities should be incorporated in the measurement framework of the respective commodities separately, without any offsetting. Offsetting will only be permitted if the conditions set out in Paragraphs CA-12.2.1 and CA-12.2.2 are met.

      71 For banks applying other approaches to measure options risks, all Options and the associated underlying instruments should be excluded from both the maturity ladder approach and the simplified approach. The treatment of options is described, in detail, in chapter CA-13.

      Amended: January 2012
      Amended: April 2011
      Apr 08