Margin in Derivatives Trading
First published:
ISBN: 978-1-78272-390-5
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Forward Valuation of Initial Margin in Exposure and Funding Calculations
Martin Dahlgren
Introduction
Variation and Initial Margin in the ISDA Credit Support Annex
Variation and Initial Margin Required by Central Counterparty Clearing Houses
Margin Requirements for Over-the-Counter Derivatives: A Supervisory Perspective
The Emergence and Concepts of the SIMM Methodology
The ISDA Standard Initial Margin Model Backtesting Framework
The Impact of Margin on Regulatory Capital
XVA for Margined Trading Positions
Modelling Forward Initial Margin Requirements for Bilateral Trading
Forward Valuation of Initial Margin in Exposure and Funding Calculations
Margin Value Adjustment for CCPs with Q-Simulated Initial Margin
Bilateral Exposure in the Presence of Margin
Central Counterparty Risk
Robust Computation of XVA Metrics for Central Counterparty Clearing Houses
Efficient Initial Margin Optimisation
Procyclicality in Sensitivity-Based Margin Requirements
Systemic Risks in Central Counterparty Clearing House Networks
9.1 INTRODUCTION
In this chapter, we continue the discussion of Chapter 8, offering additional analysis and ideas on the complex topic of forward margin computation. Among other things, we here promote a particular pragmatic approach for calculating forward uncleared margin requirements (UMR) initial margin (IM) used in both exposure calculations and margin valuation adjustment (MVA). Unlike much other work in the area, we specifically consider the complexities associated with multiple active credit support annexes (CSAs) governing the trading relationship with a given counterparty. We also suggest simple valuation formulas for credit valuation adjustment (CVA) and MVA under the assumption of a perpetual static portfolio distribution, and consider business cases for when such an approach might be appropriate.
Since the BCBS–IOSCO (Basel Committee on Banking Supervision and Board of the International Organization of Securities Commissions 2015) uncleared margin requirements (often referred to in the industry as the “uncleared margin rules”) were first introduced on September 1, 2016, the default exposures on over-the-counter (OTC) derivatives have been reduced significantly
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