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Calculating margin requirements at EXANTE
Calculating margin requirements at EXANTE
Updated over a week ago

Margin requirement represents the minimum amount of assets a client needs to have in their balance before engaging in margin trading. You can find the information on margin trading in the article Margin.

EXANTE uses an in-house risk management system, a variation of SPAN®, the Standard Portfolio Analysis of Risk to calculate a portfolio's margin requirement. The SPAN® methodology consists of a series of portfolio "what-if" scenarios that yield the worst possible performance loss a portfolio can suffer over a specific time horizon. To do this, SPAN® uses a predefined set of parameters reflecting the market conditions of traded contracts.

The general formula for the initial margin is:

Margin = max(Scanning Risk + Inter-month Charge – Inter-commodity Credit, Short Option Minimum, Concentration Margin)

To illustrate the EXANTE SPAN implementation, the following example portfolio is used:

By using a set of numerical values that indicate how a particular contract will gain or lose value under various conditions, the risk management system simulates 16 scenarios. Each condition is called a risk scenario. A typical set of scenarios may look as follows:

The system aggregates the resulting losses from the 16 scenarios for a given underlying asset (e.g., B.ICE), and the highest potential loss within these scenarios determines the margin requirement for the respective position.

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