• The delta buckets are replicated in the vega context.
• The bucket remains at the first level of aggregation between vega risk positions within a risk class.
• The risk of market illiquidity is incorporated into the determination of vega risk factors, through the assignment of different liquidity horizons for each risk class.
• The risk weight for a given vega risk factor $R{W}_k$ is determined by the following function:

  $$R{W}_k=min\left[R{W}_{\sigma }*\frac{\sqrt{L{H}_{riskclass}}}{\sqrt{10}};100\%\right]$$

  where: $R{W}_{\sigma }$ is set at 55% and $L{H}_{riskclass}$ is the regulatory liquidity horizon to be prescribed in the determination of each vega risk factor $k$.

Excel

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