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CA-8.3.4

The delta-weighted option positions are slotted into the interest rate time-bands as set out in Chapter CA-4. A two-legged approach should be used as for other derivatives, as explained in Chapter CA-4, requiring one entry at the time the underlying contract takes effect and a second at the time the underlying contract matures. A few examples to elucidate the two-legged treatment are set out below:

(a) A bought call option on a June three-month interest rate future will, in April, be considered, on the basis of its delta-equivalent value, to be a long position with a maturity of five months and a short position with a maturity of two months.
(b) A written option with the same underlying as in (a) above, will be included in the measurement framework as a long position with a maturity of two months and a short position with a maturity of five months.
(c) A two months call option on a bond future where delivery of the bond takes place in September will be considered in April, as being long the bond and short a five months deposit, both positions being delta-weighted.
October 07