In order to secure credit risk exposures, KDPW_CCP requires participants to post margins. The KDPW_CCP margin calculation model quantifies the price risk of all types of cleared instruments.
The margin requirement is equal to HVaR (historical value at risk) for a given account based on the relevant parameters:
- holding period
- confidence level
- decay rate
- number of historical events (time horizon)
- method used to calculate rates for VaR scenarios.
Margins (and other risk measures, if any) are calculated in three steps:
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.
- generate scenarios from the market history;
- price the portfolio using historical scenarios;
- statistical analysis – calculate quantile values.