Margining risk

Margining risk is a financial risk that future cash flows are smaller than expected due to the payment of margins, i.e. a collateral as deposit from a counterparty to cover some (or all) of its credit risk.[1] It can be seen as a short-term liquidity risk, a quantity called MaR can be used to measure it.

Not to be confused with Margin at risk.

Methodology

In order to decrease the risk of a counter party to default, a technique called portfolio margining is applied, which simply means that the assets within a portfolio are clustered and sorted by the descending projected net loss, e.g. calculated by a pricing model.[2] One can then determine for which cluster(s) one wants to perform margin calls.

References
  1. Reucroft, Miles. "Portfolio Margining Risk vs. Reward". TABB Forum. Retrieved 14 December 2015.
  2. "Portfolio Margining Risk Disclosure Statement" (PDF). optionsexpress.com. Charles Schwab. Retrieved 18 December 2015.
This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.