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Methods to determine capital requirements for options

Author

Listed:
  • P.J.G. VLAAR

    (De Nederlandsche Bank)

Abstract

The measurement of risks associated with options is a complex business for a number of reasons. Firstly, option prices tend to be influenced in a non-linear manner by several variables. Unanticipated changes in the price or volatility of the underlying security or changes in interest rates are just some examples of these factors affecting risk measurement. Another reason why option-related risks are difficult to measure is that such risks should be examined in relation to other positions. The nature of the risks involved in options are clarified in order to help assess whether the various capital adequacy requirements proposed are reasonable. Four different bank capital adequacy schemes are examined.

Suggested Citation

  • P.J.G. Vlaar, 1996. "Methods to determine capital requirements for options," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 49(198), pages 351-373.
    • Handle: RePEc:psl:bnlaqr:1996:34
    as

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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/10691/10576
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    References listed on IDEAS

    as
    1. M.J.B. Hall, 1995. "The measurement and assessment of market risk: a comparison of the European Commission and Basle Committee approaches," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 48(194), pages 283-330.
    2. Arturo Estrella, 1995. "Taylor, Black and Scholes: series approximations and risk management pitfalls," Research Paper 9501, Federal Reserve Bank of New York.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Risk assessment; Measurement; Options;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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