SERVING THE QUANTITATIVE FINANCE COMMUNITY

 
User avatar
PvalAnal85
Topic Author
Posts: 37
Joined: May 26th, 2009, 6:23 pm

Question on Initial Margin

November 14th, 2012, 4:14 pm

Hello,I have the following scenario/question around initial marginLet's say my portfolio contains a single futures contract X, which I clear on an exchange, and I put up Initial Margin (IM) calculated using some methodology (e.g. SPAN).A month later, I trade futures contract Y, so my portfolio contains both X and Y. Y does not offset X.When I clear the second futures contract, is the IM calculated on Y only, or is it calculated on the portfolio of X and Y together (with netting)?In addition, let's say the required IM calculated on X and Y together is lower than the required IM calculated on X originally (say, due to diversification benefit). Do I get to withdraw the excess IM currently posted with the clearing house?Thanks!
 
User avatar
acastaldo
Posts: 1416
Joined: October 11th, 2002, 11:24 pm

Question on Initial Margin

November 14th, 2012, 5:10 pm

SPAN is calculated at the portfolio level. So the answer is yes. (You can withdraw margin if there is a partial offsetting of the risk of X by Y. A made up example: X= long crude, Y=short natural gas).
Last edited by acastaldo on November 13th, 2012, 11:00 pm, edited 1 time in total.
ABOUT WILMOTT

PW by JB

Wilmott.com has been "Serving the Quantitative Finance Community" since 2001. Continued...


Twitter LinkedIn Instagram

JOBS BOARD

JOBS BOARD

Looking for a quant job, risk, algo trading,...? Browse jobs here...


GZIP: On