## IBANK 6.3.9 Gamma Capital Charges

(1) An Islamic banking business firm that writes options must calculate the capital charge for gamma risk (

**) for each option position separately.***gamma capital charge*
(2) To calculate gamma capital charge, calculate the gamma impact of each option in accordance with the following formula:

where:

*Gamma impact*= 1/2 ×*gamma*×*VU*^{2}where:

**is:x***VU*
(a) for a profit rate option:

(i) if the option has a bond as the underlying — the market value of the underlying multiplied by the risk factor applicable under column 3 of table 6.6.8A; or

(ii) if the option has a profit rate as the underlying — the market value of the underlying multiplied by the assumed changes in yield in column 4 of table 6.6.8A;

(b) for options on equities and stock indices — the market value of the underlying multiplied by 8%;

(c) for options on foreign exchange, gold and silver — the market value of the underlying multiplied by 8%; or

(d) for an option on commodities — the market value of the underlying multiplied by 15%.

(3) In calculating the gamma impact for an option mentioned in the definition of VU, the firm must treat as the same underlying:

(a) for profit rates — each time band in column 2 of table 6.6.8A (with each position allocated to separate maturity ladders);

(b) for equities and stock indices — each recognised exchange;

(c) for foreign currencies, gold and silver — each currency pair, gold and silver; and

(d) for commodities — each individual commodity of a kind described in rule 6.4.2(3)(a) or (b).

(4) Each option on the same underlying described in subrules (2) and (3) will have a gamma impact that is positive or negative. The firm must add the individual gamma impacts, resulting in a net gamma impact for each underlying that is either positive or negative.

(5) To calculate the firm's total gamma capital charge, exclude gamma impacts that are positive. The

**is the sum of the absolute values of the net negative gamma impacts.***total gamma capital charge*Derived from QFCRA RM/2015-2 (as from 1st January 2016). |