Delta-adjusted exposure

An option’s delta is the expected change in its value for a one-unit move in the underlying. A call on 1,000 shares with a delta of 0.4 behaves like a holding of about 400 shares. Delta-adjusted exposure is that equivalent: notional multiplied by delta.

It is the standard conversion for options in exposure limits. Under Annex II of Regulation (EU) 231/2013, an equity option converts at contracts × contract size × share price × delta. Because delta changes with price, volatility and time, the exposure must be refreshed at each valuation.

Acclimetry’s derivative exposure limit reads delta-adjusted notional as stated by the feed: the absolute value of notional × delta. The currency hedge ratio counts a hedge at its delta-adjusted notional too, so a 1,000 notional at delta 0.5 hedges 500. Example: delta-adjusted notional of 700 in a 1,000 portfolio is 70%, a breach of a 60% cap.