Related provisions for BIPRU 7.3.46

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(1) A firm must calculate its equity PRR by:(a) identifying which positions must be included within the PRR calculation (see BIPRU 7.3.2R);(b) deriving the net position in each equity in accordance with BIPRU 7.3.23R;(c) including each of those net positions in either the simplified equity method (see BIPRU 7.3.29R) or, subject to BIPRU 7.3.27R, the standard equity method (see BIPRU 7.3.32R); and(d) summing the PRR on each net position as calculated under the simplified equity
Under the standard equity method, a firm must:(1) group equitypositions into country portfolios as follows:(a) a position in an individual equity belongs to:(i) the country it is listed in;(ii) any of the countries it is listed in, if more than one; or(iii) the country it was issued from, if unlisted;(b) a position in an equity basket or index that is treated under BIPRU 7.3.15R(2), is allocated to one or more country portfolios based on the countries to which the underlying equities
A basic interest rate PRR calculation is included in BIPRU 7.3 for a firm that does not wish to use the calculation in BIPRU 7.2 (Interest rate PRR). However, it tends to result in higher charges than the methods in BIPRU 7.2, largely because the interest rate PRR is calculated on each notional equityposition separately and then summed without offsetting long and short positions.
This rule applies to a firm that does not include a forward, future, option or swap on an equity, basket of equities or equity index in the calculation of its interest rate PRR calculation under BIPRU 7.2 (Interest rate PRR). However it does not apply to cliquet as defined in BIPRU 7.6.18R (Table: Option PRR: methods for different types of option). A firm must calculate the interest rate PRR for a position being treated under this rule as follows:(1) multiply the market value
BIPRU 7.10.144RRP
If a firm'sVaR model permission covers equitygeneral market risk but not equityspecific risk, the firm must calculate the equity PRR so far as it relates to equityspecific risk in accordance with the standard market risk PRR rules except that the PRR for equityspecific risk must be calculated under the standard equity method.
(1) A firm may calculate the securities PRR for position risk (general market risk and specific risk) for positions in CIUs in accordance with the methods set out in the securities PRR requirements or, if the firm has a VaR model permission, in accordance with the methods set out in BIPRU 7.10 (Use of a Value at Risk Model), to assumed positions representing those necessary to replicate the composition and performance of the externally generated index or fixed basket of equities

Table: Types of CAD 1 model

This table belongs to BIPRU 7.9.6G

Options risk aggregation models

Interest rate pre-processing models

Brief description and eligible instruments

Analyse and aggregate options risks for:

May be used to calculate duration weighted positions for:

The output and how it is used in the PRR calculation

Depending on the type of model and the requirements in the CAD 1 model waiver granted, the outputs from an options risk aggregation model are used as an input to the market risk capital requirement calculation.

Depending on the type of model and the requirements in the CAD 1 model waiver granted, the individual sensitivity figures produced by this type of CAD 1 model are either input into the calculation of interest rate PRR under the interest rate duration method (see BIPRU 7.2.63R) or are converted into notional position and input into the calculation of interest rate PRR under the interest rate maturity method (see BIPRU 7.2.59R).

To calculate the reduced net underwriting position a firm must apply the reduction factors in the table in BIPRU 7.8.28R to the net underwriting position (calculated under BIPRU 7.8.17R) as follows:(1) in respect of debt securities, a firm must calculate two reduced net underwriting positions; one for inclusion in the firm'sinterest rate PRRspecific risk calculation (BIPRU 7.2.43R), the other for inclusion in its interest rate PRRgeneral market risk calculation (BIPRU 7.2.52R);