Derivatives cash outflows: the sum of all net cash outflows should receive a 100% factor. Banks should calculate, in accordance with their existing valuation methodologies, expected contractual derivative cash inflows and outflows. Cash flows may be calculated on a net basis (ie inflows can offset outflows) by counterparty, only where a valid master netting agreement exists. Banks should exclude from such calculations those liquidity requirements that would result from increased collateral needs due to market value movements or falls in value of collateral posted.(48) Options should be assumed to be exercised when they are ‘in the money’ to the option buyer.

High

(48) These risks are captured in paragraphs 119 and 123, respectively.