All commodity derivatives and off-balance-sheet positions affected by changes in commodity prices should be included in this valuation framework. These include commodity futures, commodity swaps and options for which the delta plus method is applied28 (see MAR 20.76 to MAR 20.79 below). To calculate risk, commodity derivatives should be converted into fictitious commodity lines and assigned to maturities as follows. This relationship can be changed for storage costs u, dividend or income yields q, and commodity yields y. Storage costs are the costs associated with storing a commodity in order to sell it at the forward price. Investors who sell the asset at a spot price to arbitrate a forward price earn the storage costs they would have paid to store the asset for sale at the forward price. Commodity returns are benefits of holding an asset for sale at the forward price that goes beyond the money received from the sale. These benefits could include the ability to meet unexpected demand or the ability to use the asset as an input for production. [12] Investors pay or forego the commodity return when selling at the spot price because they forego these benefits. Such a relationship can be summarized as follows: Futures contracts are used by two categories of market participants: hedgers and speculators. Producers or buyers of an underlying asset guarantee or guarantee the price at which the commodity is sold or bought, while portfolio managers and traders can also bet on the price movements of an underlying asset using futures contracts.

for raw materials, each individual product as defined in MAR20.66. If a good is part of a futures contract (quantity of goods to be received or delivered), any interest rate or foreign exchange risk related to the other component of the contract must be declared in accordance with March 20.2 to March 20.39 and March 20.52 to March 20.61. Positions that constitute pure equity financing (i.e., that a physical share has been sold forward and funding costs are fixed until the date of the forward sale) may be omitted from the calculation of commodity risk, although they are subject to interest rate and counterparty risk requirements. When calculating capital requirements according to the maturity manager`s approach, banks must first express each commodity line (spot plus forward) in the standard unit of measurement (barrel, kilo, gram, etc.). The net position of each commodity is then converted into the local currency at prevailing spot rates. For the maturity manager approach and the simplified approach, long and short positions in any commodity can be reported on a net basis for the purpose of calculating open positions. However, positions on various commodities are generally not settled in this way. Nevertheless, national authorities will have a margin of discretion to allow compensation between different subcategories26 of the same product where the subcategories are available in relation to each other. They may also be considered to be compensated if they are close substitutes for each other and a minimum correlation of 0.9 between price movements over a minimum period of one year can be clearly established.

However, a bank wishing to base its calculation of capital requirements for commodities on correlations should convince the competent supervisory authority of the accuracy of the chosen methodology and obtain its prior consent. When banks use the model approach, they can balance long and short positions in different commodities to an extent determined by empirical correlations, just as a limited degree of compensation is allowed, for example, between interest rates in different currencies. In order to protect the Bank against underlying risks, interest rate risks and time interval risks using the simplified approach, the capital requirement for each commodity, as described in 20.67 Mar and 20.70 Mar above, is subject to an additional capital requirement equal to 3% of the Bank`s gross positions, shorter lengths, in this particular product. When valuing gross positions in commodity derivatives for this purpose, banks should use the current spot rate. Some options (for example. B if the underlying asset is an interest rate, currency or commodity) do not carry a specific risk, but a specific risk exists with options on certain interest-related instruments (e.g. B. options on a debt or corporate bond index; see 20.2 to 20.39 MARS for relevant capital requirements) and for stock options and equity indices (see 20.40 to 20.51 MARS). The fee under this measure is 8% for currency options and 15% for commodity options.

Banks trading a limited number of purchased options can apply the simplified approach described in Table 9 for certain transactions. As an example of how the calculation would work if a holder of 100 shares currently valued at $10 each holds an equivalent put option with an exercise price of $11, the required capital would be: $1,000 x 16% (i.e., 8% specific plus 8% overall market risk) = $160, less the amount of the option in the currency ($11) x 100 = $100, that is, the capital requirement would be $60. A similar methodology applies to options whose underlying asset is a foreign currency, interest-related instrument or commodity. Traded mortgage securities and mortgage derivatives have unique characteristics due to prepayment risk. As a result, these securities, which will be dealt with at national discretion, will not be subject to joint treatment at this time. A security that is the subject of a repurchase agreement or securities lending contract is treated as if it were still in the possession of the lender of the security, i.e. it is treated in the same way as other securities positions. When calculating the capital requirement for risk directed using the simplified approach, the same procedure is used as for the approach to the maturity scale above (see MAR 20.67 and MAR 20.70). Again, all commodity derivatives and off-balance-sheet items affected by changes in commodity prices should be included. The capital requirement is 15% of the net position, long or short, in each commodity.

In finance, a futures contract (sometimes called a futures contract) is a standardized legal agreement to buy or sell something at a predetermined price at a certain point in the future between parties who do not know each other. The traded asset is usually a commodity or financial instrument. The predetermined price at which the parties agree to buy and sell the asset is called the forward price. The specified period in the future, i.e. when delivery and payment are made, is called the delivery date. Since it is a function of an underlying asset, a futures contract is a derivative. The underlying assets include physical commodities or other financial instruments. Futures contracts describe the amount of the underlying asset and are normalized to facilitate trading on a futures exchange. Futures can be used to hedge or trade speculation. Margin requirements are lifted or reduced in some cases for hedgers who have physical ownership of the hedged commodity or spread traders who have offsetting contracts that balance the position. If the deliverable is not in abundance (or if it does not yet exist), rational pricing cannot be applied because the arbitration mechanism is not applicable.

Here, the price of futures contracts is determined by the current supply and demand of the underlying asset in the future. If the deliverable asset is abundant or can be freely created, the price of a futures contract is determined by arbitrage arguments. This is typical of stock index futures, Treasury bond futures, and physical commodity futures when they are on sale (for example. B post-harvest agricultural crops). .

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