10.If a Bank’s risk appetite statement includes taking option positions, the market risk measurement system must specify risk factors corresponding to the implied volatilities of those options, to capture the risk of gain or loss resulting from changes in volatility of those positions.
11.The following criteria apply to the measurement of options risk:
a.Bank’s models must capture the non-linear price characteristics of options positions; and
b.Each Bank’s risk measurement system must have a set of risk factors that captures the volatilities of the rates and prices underlying option positions, including Vega risk. Banks with relatively large and/or complex options portfolios must have detailed specifications of the relevant volatilities.