SCR Calculator User Manual

Version 1.13.2.0 Last modified 2024-3-21

Equity Options Modelling


Black Scholas Modelling

Equity Options - European calls and puts - are modelled using the Black Scholas Formula.

  • Given the option price, strike and tenor and the underlying price, an implied volatility is worked out.
  • If the regulatory equity stress is a downward stress, the shocked-down underlying price is used to work out a revised option price, assuming the implied volatility stays the same. The movement in option price is the equity risk capital of this option.
  • If the regulatory equity stress is a volatility stress, the implied volatility is moved and the option is repriced. The movement in option price is the equity risk capital of this option.
  • The final direction of the stress - i.e. whether it is a stress or a relief - depends on the long/short position of the option.
  • Due to the asymmetrical nature of equity options, the stresses of short puts tend to be the heaviest.

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