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CA-13.1.1

It is recognised that the measurement of the price risk of options is inherently a difficult task, which is further complicated by the wide diversity of banks' activities in options. The CBB has decided that the following approaches should be adopted to the measurement of options risks:

(a) Banks which solely use purchased options are permitted to use the simplified (carve-out) approach described later in this chapter; and
(b) Banks which also write options should use either the delta-plus (buffer) approach or the scenario approach, or alternatively use a comprehensive risk management model. The CBB's detailed rules for the recognition and use of internal models are included in chapter CA-14.
Amended: April 2011
Apr 08