Related provisions for IFPRU 6.1.11
1 - 3 of 3 items.
A firm that wishes to use own estimates for delta for the purposes of the standardised approach for options, should provide the FCA with confirmation that it meets the minimum standards set out in IFPRU 6.1.8 G to IFPRU 6.1.15 R (Minimum standards for own estimates of delta) for each type of option for which it calculates delta. Where a firm meets the minimum standards, it can expect to be permitted to use own estimates of delta for the relevant option.
If a firm is unable to provide assurance with regard to a particular option type which is currently within its permissions, a capital add-on may be applied and a rectification plan agreed. If a firm is unable to comply with the rectification plan within the mandated time-frame, further supervisory measures may be taken. This may include variation of a firm's Part 4A permission so that it is no longer allowed to trade those particular types of options for which it does not meet
The level of sophistication of the pricing models used to calculate own estimates of delta for use in the standardised approach for options should be proportionate to the complexity and risk of each option, and the overall risk of the firm's options trading business. In general, it is considered that the risk of sold options will be higher than the risk of the same options when bought.