(b) Duration-based

The competent authorities may allow institutions in general or on an individual basis to use a system for calculating the capital requirement for the general risk on traded debt instruments which reflects duration, instead of the system set out in points 17 to 25, provided that the institution does so on a consistent basis. Under a system referred to in point 26 the institution shall take the market value of each fixed‐rate debt instrument and thence calculate its yield to maturity, which is implied discount rate for that instrument. In the case of floating‐rate instruments, the institution shall take the market value of each instrument and thence calculate its yield on the assumption that the principal is due when the interest rate can next be changed. The institution shall then calculate the modified duration of each debt instrument on the basis of the following formula: modified duration = ((duration (D))/(1 + r)), where: D = ((Σ_(t=1)^(m)((t C_(t))/((1+r)^(t))))/(Σ_(t=1)^(m)((C_(t))/((1+r)^(t))))) where: R = yield to maturity (see point 25), C_(t) = cash payment in time t, M = total maturity (see point 25). The institution shall then allocate each debt instrument to the appropriate zone in Table 3. It shall do so on the basis of the modified duration of each instrument. Table 3 Zone Modified duration (in years) Assumed interest (change in %) One > 0 ≤ 1,0 1,0 Two > 1,0 ≤ 3,6 0,85 Three > 3,6 0,7 The institution shall then calculate the duration‐weighted position for each instrument by multiplying its market price by its modified duration and by the assumed interest‐rate change for an instrument with that particular modified duration (see column 3 in Table 3). The institution shall calculate its duration-weighted long and its duration-weighted short positions within each zone. The amount of the former which are matched by the latter within each zone shall be the matched duration‐weighted position for that zone. The institution shall then calculate the unmatched duration-weighted positions for each zone. It shall then follow the procedures laid down for unmatched weighted positions in points 21 to 24. The institution's capital requirement shall then be calculated as the sum of: 2 % of the matched duration-weighted position for each zone; 40 % of the matched duration-weighted positions between zones one and two and between zones two and three; 150 % of the matched duration-weighted position between zones one and three; and 100 % of the residual unmatched duration-weighted positions.

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Source: EUR-Lex (Cellar) · retrieved 2026-10-10 · Text as adopted (Official Journal); later amendments are not incorporated in this text.