Definition of the parameter ρ_kl (option maturity)

In accordance with Article 325ay of Regulation (EU) No 575/2013 (CRR), to determine the parameter ρkl(option maturity) TK and Tl shall be equal to the maturities of the options for which the vega sensitivities are derived, expressed as a number of years. The parameter ρkl(option maturity) is used to determine the correlation ρkl between the weighted sensitivities WSk and WSl, which are associated to risk factor k and l respectively, in accordance with Article 325f of the CRR. Section 3 of Chapter 1a on the Alternative standardised approach specifies the vega risk factors for which vega weighted sensitivities should be calculated, and those vega risk factors are assigned to prescribed maturities. Accordingly, TK and Tl should be the prescribed option maturities associated to the vega weighted sensitivities WSk and WSl. For example, for the purposes of vega risk of the foreign exchange risk class, in accordance with Article 325q(2) of the CRR the foreign exchange vega risk factors are the implied volatilities of exchange rates between currency pairs, and they shall be mapped to the prescribed maturities 0,5 years, 1 year, 3 years, 5 years, 10 years in accordance with the maturities of the corresponding options. Accordingly, TK and Tl should be equal to those maturities, i.e. the prescribed option maturities associated to the weighted sensitivities WSk and WSl, respectively.