6
votes
MVA, initial margin valuation adjustment for derivatives
The name initial margin is somewhat misleading as initial margin is dynamic i.e it is adjusted through time.
So, as you say, on day zero, it can be computed as a 10 day VaR VaR(10, t0). But, on day ...
- 61
5
votes
Operational aspects of repo funding trades
I believe the example is merely for illustrative purposes. You shouldn't be able to fully fund a position in real life.
The funding of (repo) and the bond purchase need not be with the same ...
- 5,662
5
votes
Mark to market forward contract
There are two types of contract (a) a forward contract and (b) a futures contract. In (a) there is no payment of margin on a daily basis. Its value is $(F_1-F_0)e^{-r(T-t)}$ as you describe. In (b) ...
- 16.6k
5
votes
Why does buying future options require margin?
This page explains why you need a margin: http://www.cmegroup.com/education/a-primer-on-margining-styles-for-options.html
Improvements:
Futures options, as well as futures margins, are governed by ...
- 1,830
4
votes
Why does buying future options require margin?
It has already been answered why margin exists and roughly how it calculated. "Options on futures employ an entirely different method known as SPAN margining", which is basically CME Group's take on a ...
- 2,985
4
votes
Why does buying future options require margin?
The answer given by AK88 is good.
To put it in simpler terms it is because a "futures account" (holding futures and options on futures) works differently from a "stock account" holding stocks and ...
- 9,332
4
votes
% Drawdown on Stock Portfolio to hit Margin Call
Define
CoL = cash or loan (cash if positive, loan if negative)
MVL = market value of long positions
MRP = Maintenance Margin Requirement fraction (=0.3)
NetLiq = liquidation value (aka total ...
- 9,332
3
votes
Accepted
Operating Leverage Interpretation
Operating leverage $k$:
$$k=\frac{Quantity*(Price-AVC)}{Profit}$$
but profit (actually operating profit) is:
$$Profit=Quantity*(Price-AVC)-FixOpCosts$$
If quantity sold increases by $a\%$ then our new ...
- 866
3
votes
Accepted
short squeeze basic questions
Is there a way to find out what the critical price of the stock
approximately is at which point most shares were sold short?
Not that I am aware of, however, there is a way to find the Daily Short ...
- 4,738
2
votes
% Drawdown on Stock Portfolio to hit Margin Call
At a 43% draw your excess liquidity hits zero and you get a margin call.
Cash = -400,000 (400k margin loan)
Securities = 571,428.60 @ ~43% drawdown
Net Liquidation Value = 174,428.57 (Cash + ...
- 4,738
2
votes
Comparing account equity vs maintenance margin on large number of positions
I don't actually know the answer to this question but the problem you describe is just a linear algebra problem. Imagine a matrix X whose rows represent the ordered ...
- 9,215
2
votes
Funded equity collars and margin loans
Further, a key element is overlooked in these answers. Although the share pledge under the collar transaction does eliminate most of the credit risk borne by the investment bank - it is still a loan. ...
- 21
2
votes
Funded equity collars and margin loans
There is no credit risk because the client pledges the underlying shares as collateral to the funded collar. This is not explained in the article.
The structure is built in such a way that the value ...
- 1,356
2
votes
Accepted
Why do some exchanges require clearing participants to post margins for cash products?
The JSCC requires Margins to be posted for unsettled contracts
As is explained here.
Initial Margin for Cash Products
In order to cover exposures for cash products, JSCC calculates the daily initial ...
- 828
2
votes
Accepted
Understanding daily installment in futures
MTM is really just bookkeeping. You hold some initial margin for your book with a broker and each day your account value is updated per end of day futures values as $F_t - F_{t-1}$ for each position. ...
- 1,643
2
votes
Textbook about methodologies for computing margins (TIMS and SPAN)
There are many margins, you have to be more specific. Are you interested in CCP (Counterparty Clearing House) margin, OTC products margin? The former are CCP-specific, and the latter are governed by ...
- 116
1
vote
Accepted
How the margining system worked in this situation?
The margin system for futures is a two level system. Each Broker has some capital (required in order to stay in business) and the Clearing House has some reserves as well. The Oct87 event that Hull ...
- 10.9k
1
vote
Question about Pattern Day Trading
If you have \$26k, and no positions on, your maintenance excess is \$26k, so your day trading buying power, DTBP, is \$26k * 4 = \$104k in DTBP. You are confusing account minimum with maintenance ...
- 464
1
vote
Accepted
price alignment interest on future contract
This blog post might help:
https://theotcspace.com/content/price-alignment-interest-pai#:~:text=PAI%20is%20the%20overnight%20cost,a%20CCP%20such%20as%20SwapClear.
Futures are settled daily, and thus ...
- 206
1
vote
Delta one trading: dependence on repo rate?
For an individual stock, the repo rate IS the interest rate r contained in the formula for the forward price. For example, suppose you are trying to replicate a forward contract by holding the stock. ...
- 16.6k
1
vote
Accepted
ISDA SIMM swap sensitivities
Usually, zero curves, that is curves of zero rates are constructed from market instruments having corresponding market rates. For example, a 3M curve will be constructed from 3M instruments.
The SIMM ...
- 2,200
1
vote
Accepted
Classifying groups of stocks beyond Market Cap/Industry/Sector
You could always turn to unsupervised machine learning and apply hierarchical clustering and then plot the relationships using a dendrogram.
There is a cool portfolio optimization paper that uses ...
- 924
1
vote
Does margin trading affect market price?
Buying or selling a CFD only indirectly affects the underlying assets’s price through the CFD issuer’s hedging activity. The feedback effect is not deterministic and unlikely to be noticeable for ...
- 5,959
1
vote
MVA, initial margin valuation adjustment for derivatives
Unlike VM which covers MtMs , IM covers close-out risk (2 weeks portfolio volatility)., it is dynamic , and required for major OTC users (see BCBS IOSCO 2015 ) i.e top up segregated account if need be ...
- 250
1
vote
Calculating required funds on Futures trades
Some exchanges do provide their historic margin requirements.
For CME:
http://www.cmegroup.com/clearing/risk-management/historical-margins.html
Caveat for above link is that this is the margin ...
1
vote
Mechanics of futures contracts: with respect to which time reference is the variational margin calculated?
Immediately as the trade is confirmed.
It will be the difference of the value of the contract when you sold it, minus the value when you bought it. The quotes at these points in time don't matter, ...
- 641
1
vote
Accepted
Mechanics of futures contracts: with respect to which time reference is the variational margin calculated?
Without getting into all your detailed questions: when you sell a futures contract that has appreciated you have for all practical purposes made money. The computer systems for your broker, your ...
- 10.9k
1
vote
if I had a 1M spread option. Would you say that was 1m notional (for IM purposes) or 1m pay + 1m rec i.e. 2m notional?
Since you own a spread option, you are altering the payoff of a single 1M underlying. Therefore, the notional would be 1M. Personally, as long as the slope of the payoff is bounded by -1 <= slope &...
- 719
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