37.The Standards requires that complex trades with more than one risk driver (e.g. multi-asset or hybrid derivatives) must be allocated to more than one asset class when the material risk drivers span more than one asset class. The full amount of the trade must be included in the PFE calculation for each of the relevant asset classes. Asset-class allocation of complex derivatives is a point of national discretion in the Basel framework, and the Central Bank believes that requiring banks to identify such trades and allocate them accordingly places appropriate responsibility on banks that choose to engage in such trades.

38.Examples of derivatives that reference the basis between two risk factors and are denominated in a single currency (basis transactions) include three-month Libor versus six-month Libor, three-month Libor versus three-month T-Bill, one-month Libor versus OIS rate, or Brent Crude oil versus Henry Hub gas. These examples are provided as illustrations, and do not represent an exhaustive list.

39.Hedging sets for derivatives that reference the volatility of a risk factor (volatility transactions) must follow the same hedging set construction outlined in the Standards for derivatives in that asset class; for example, all equity volatility transactions form a single hedging set. Examples of volatility transactions include variance and volatility swaps, or options on realized or implied volatility.