Bear spread and Capital adequacy: Difference between pages

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1. ''Options speculation''.
1. ''Bank regulation - capital requirements - Bank for International Settlements (BIS).''


A composite speculative deal in two options, which results in a profit/loss profile similar to a conventional put option, except that the upside potential is capped in return for a reduction in the net premium payable.  
Capital adequacy is the system of regulating banks (and other financial institutions) by requiring them to maintain minimum acceptable levels - and types - of capital, adequate to absorb their potential credit losses and other trading losses.


A bear spread can be constructed using put options by buying a put with a given strike price, and selling an otherwise identical put with a lower strike price. It can also be constructed using appropriate call options.


Requirements are laid down internationally by the Bank for International Settlements (BIS) and implented and monitored by domestic central banks.


2. ''Hedging with options''.  
Historically, the BIS capital adequacy standard had been 8%.


A composite transaction in two options plus an underlying asset or other exposure, resulting in the same profit/(loss) profile as the deal described in 1. above.
Under the Basel III framework this standard was increased (strengthened) substantially - very roughly doubled - and its measurement refined.
 
 
2. ''Insurance & other contexts.''
 
Similar risk management and regulation in other contexts.
 
For example, insurance companies.




== See also ==
== See also ==
* [[Bear]]
* [[Bank for International Settlements]] (BIS)
* [[Bull spread]]
* [[Basel II]]
* [[Put option]]
* [[Basel 2.5]]
* [[Basel III]]
* [[Capital Adequacy Directive]]
* [[Capital Requirements Directive]]
* [[Central bank]]
* [[Common equity]]
* [[Countercyclical buffer]]
* [[Economic capital]]
* [[G-SIB]]
* [[Insurance]]
* [[IRB]]
* [[IRRBB]]
* [[GCLAC]]
* [[ICAAP]]
* [[Microprudential]]
* [[Own funds]]
* [[Pillar 1]]
* [[Pillar 2]]
* [[Pillar 3]]
* [[Primary Loss Absorbing Capital]]
* [[Regulatory capital]]
* [[Reserve requirements]]
* [[RWAs]]
* [[Settlement risk]]
* [[Slotting]]
* [[Solvency II]]
 
[[Category:Compliance_and_audit]]

Revision as of 20:19, 15 October 2021

1. Bank regulation - capital requirements - Bank for International Settlements (BIS).

Capital adequacy is the system of regulating banks (and other financial institutions) by requiring them to maintain minimum acceptable levels - and types - of capital, adequate to absorb their potential credit losses and other trading losses.


Requirements are laid down internationally by the Bank for International Settlements (BIS) and implented and monitored by domestic central banks.

Historically, the BIS capital adequacy standard had been 8%.

Under the Basel III framework this standard was increased (strengthened) substantially - very roughly doubled - and its measurement refined.


2. Insurance & other contexts.

Similar risk management and regulation in other contexts.

For example, insurance companies.


See also

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