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; and
(b) The sum of short and long positions in the same time-band that are matched is multiplied first by the spot price of the commodity, and then by the spread rate 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 band37 | |
| 0–1 | months |
| 1–3 | months |
| 3–6 | months |
| 6–12 | months |
| 1–2 | years |
| 2–3 | years |
| over 3 | years |
37 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.
January 2015