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HVaR - calculation initial margin

In order to manage the clearing risk of OTC transactions, margins and contributions to the clearing fund are calculated based on the historical Value at Risk (VaR) simulation model. OTC risk is measured as VaR for a five-day holding period at a confidence level of 99.5%. Risk is measured based on a ten-year time horizon.

The margin requirement is equal to HVaR (historical value at risk) for a given account based on the relevant parameters.

KDPW_CCP HVaR risk parameters
Parameter

Value

Confidence level

99,5%

Liquidation period

5 days

Observation window

as a target 10 years

Decay rate

none (λ=100%)

Perturbation method

- interest rates - additive method with scaling of the liquidation period
- FX rates - multiplicative method with scaling of the liquidation period

Absolute value

no

Compensation

yes


The clearing guarantee system and the applicable procedures are regularly validated according to legal provisions in order to ensure the adequacy of the used risk models.
Calculation of margins (and other risk measures, if any) is a three-step process:
  • generate scenarios from the market history;
  • price the portfolio using each of the generated historical scenarios;
  • statistical analysis – calculate quantile values.

The method of calculating margins and the rules of valuation of derivatives and repo transactions (including discount and forward curves) are laid down in Appendix 6 to the Detailed Rules of the OTC Clearing System.

 Collateral table *
* Last message update: 2019-05-24