IBANK 6.3.7 Relation to Mark-to-Market Method

(1) An Islamic banking business firm that writes options must include delta-weighted option positions in measuring its market risk.
(2) The firm must report such an option as a position equal to the sum of the market values of the underlying multiplied by the sum of the absolute values of the deltas. Because delta does not cover all risks associated with option positions, the firm must calculate gamma and vega in calculating the regulatory capital charge.

Note Gamma is the rate of change of delta with respect to a change in the price of the underlying. Vega is the sensitivity of the value of an option to a change in the volatility of the underlying.
(3) The firm must calculate delta, gamma and vega using the pricing model used by a recognised exchange, or a proprietary options pricing model approved, in writing, by the Regulatory Authority.
Derived from QFCRA RM/2015-2 (as from 1st January 2016).