27.Banks must determine a supervisory delta adjustment for each transaction for use in calculations of effective notional amounts. Banks must apply supervisory delta adjustments at the trade level that reflect the direction of the transaction - that is, whether the position is long or short in the primary risk driver - and on whether the transaction is an option, CDO tranche, or neither. Supervisory delta adjustments are provided in Table 1.

Table 1: Supervisory Delta Adjustments

Definitions for Table 1

For options:
 

In this expression, P is the current forward value of the underlying price or rate, K is the exercise or strike price of the option, T is the time to the latest contractual exercise date of the option, a is the appropriate supervisory volatility from Table 2, and 0 is the standard normal cumulative density function. A supervisory volatility of 50% should be used on swaptions for all currencies.

For CDO tranches:

In this expression, A is the attachment point of the CDO tranche and D is the detachment point of the CDO tranche.