Book traversal links for D. Supervisory Duration
D. Supervisory Duration
C 52/2017 STA Effective from 1/4/202124.The Supervisory Duration calculation required in the Standards is in effect the present value of a continuous-time annuity of unit nominal value, discounted at a rate of 5%. The implied annuity is received between dates S and E (the start date and the end date, respectively), and the present value is taken to the current date.
25.For interest rate and credit derivatives, the supervisory measure of duration depends on each transaction’s start date S and end date E. The following Table presents example transactions and illustrates the values of S and E, expressed in years, which would be associated with each transaction, together with the maturity M of the transaction.
26.Note there is a distinction between the period spanned by the underlying transaction and the remaining maturity of the derivative contract. For example, a European interest rate swaption with expiry of 1 year and the term of the underlying swap of 5 years has S=1 year and E=6 years. An interest rate swap, or an index CDS, maturing in 10 years has S=0 years and E=10 years. The parameters S and E are only used for interest rate derivatives and credit-related derivatives.