The BIS regulatory capital treatment for the credit risk of OTC derivatives is:
A. (Net Replacement Value) x 8%
B. 3 x (Credit VaR)
C. (potential exposure) - (current exposure)
D. None of the above
Answer:D
Calculation of the BIS risk-weighted amounts for balance sheet OTC derivatives includes calculation of the current replacement cost plus an add-on amount that approximates the future replacement cost. The add-on depends upon the type and the residual maturity of the contract.