Margin in Derivatives Trading
First published:
ISBN: 978-1-78272-390-5
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Bilateral Exposure in the Presence of Margin
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
11.1 INTRODUCTION
Collateralisation has long been a standard technique of mitigating counterparty risk in OTC bilateral trading. The most common collateral mechanism is variation margin (VM), which aims to keep the exposure gap between portfolio value and posted collateral below certain, possibly stochastic, thresholds. Even when the thresholds for VM are set to zero, however, there remains residual exposure to the counterparty’s default resulting from a sequence of contractual11The various collateral mechanisms, including the precise definition of variation margin thresholds, are typically captured in an International Swaps and Derivatives Association (ISDA) Credit Support Annex (CSA), a portfolio-level legal agreement that supplements an ISDA Master Agreement. See Chapter 1 for more details. and operational time lags, from the last snapshot of the market for which the counterparty would post in full the required VM to the termination date after the counterparty’s default. The aggregation of these lags results in a time period, known as the margin period of risk (MPoR), during which the gap between the portfolio value and the collateral can widen. The length of the MPoR is a
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