The capital charges for the carved out positions are as set out in the table below. As an example of how the calculation would work, if a bank holds 100 shares currently valued at $ 10 each, and also holds an equivalent put option with a strike price of $ 11, the capital charge would be as follows:

[$ 1,000 x 16%⁷³] minus [($ 11 - $ 10)⁷⁴ x 100] = $ 60

A similar methodology applies to options whose underlying is a foreign currency, an interest rate related instrument or a commodity.

Simplified Approach: Capital Charges

⁷³ 8% specific risk plus 8% general market risk.

⁷⁴ The amount the option is "in the money".

⁷⁵ In some cases such as foreign exchange, it may be unclear which side is the "underlying instrument"; this should be taken to be the asset which would be received if the option were exercised. In addition, the nominal value should be used for items where the market value of the underlying instrument could be zero, e.g., caps and floors, swaptions etc.

⁷⁶ Some options (e.g., where the underlying is an interest rate, a currency or a commodity) bear no specific risk, but specific risk is present in the case of options on certain interest rate related instruments (e.g., options on a corporate debt security or a corporate bond index - see chapter CA-9 for the relevant capital charges), and in the case of options on equities and stock indices (see chapter CA-10 for the relevant capital charges). The capital charge for currency options is 8% and for options on commodities is 15%.

⁷⁷ For options with a residual maturity of more than six months, the strike price should be compared with the forward, not the current, price. A bank unable to do this should take the "in the money" amount to be zero.

⁷⁸ Where the position does not fall within the trading book options on certain foreign exchange and commodities positions not belonging to the trading book), it is acceptable to use the book value instead of the market value.