CA-5.6.10
The steps in the calculation of the commodities risk by the maturity ladder approach are:
(a) The net positions in individual commodities, expressed in terms of the standard unit of measurement, are first slotted into the maturity ladder. Physical stocks are allocated to the first-time band. A separate maturity ladder is used for each commodity.
(b) Asset and liability positions in the same time-band are matched. The sum of the matched asset and liability positions is multiplied first by the spot price of the commodity, and then by a spread of 1.5% for each time-band as set out in the table below. This represents the capital charge in order to capture all risks within a time-band (which, together, are sometimes referred to as curvature risk).
| Time band18 | |
| 0-1 | months |
| 1-3 | months |
| 3-6 | months |
| 6-12 | months |
| 1-2 | years |
| 2-3 | years |
| over 3 | years |
18 Instruments, where the maturity is on the boundary of two maturity time-bands, should be placed into the earlier maturity band. For example, instruments with a maturity of exactly one-year are placed into the 6 to 12 months time-band.
Apr 08