PRU A6.6.5

(1) An Authorised Person that writes or purchases Options may include Delta-weighted Options positions within the standardised methodology set out in Sections A6.2 to A6.5. Such Options must be reported as a position equal to the market value of the underlying instrument multiplied by the Delta.
(2) An Authorised Person is also required to measure and Vega risks in order to calculate the total capital charge. These sensitivities will be calculated according to an approved proprietary Options pricing model.
(3) Delta-weighted positions with debt Securities or interest rates as the underlying instrument must be inserted into the interest rate timebands, as set out in Section A6.2. A two-legged approach must be used as for other Derivatives, requiring one entry at the time the underlying instrument takes effect and a second at the time the underlying instrument matures. Floating rate instruments with caps or floors must be treated as a combination of floating rate Securities and a series of European-style Options.
(4) The capital charge for Options with equities as the underlying instrument must also be based on the Delta-weighted positions which must be incorporated in the measure of Equity Risk Capital Requirement described in Section A6.3. For purposes of this calculation, each national market must be treated as a separate underlying instrument.
(5) The capital charge for Options on commodities, foreign currency (including gold) positions must be based on the method set out in Section 5.8. For Delta risk, the net Delta-based equivalent of the commodities, foreign currency including gold) Options must be incorporated into the measurement of the Exposure for the respective currency (or gold) position.
(6) Individual net Delta positions as described above must be treated as the underlying instrument in accordance with Sections A6.4 to A6.5.