Margining risk

Not to be confused with Margin at 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.

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

↑ Reucroft, Miles. "Portfolio Margining Risk vs. Reward". TABB Forum. Retrieved 14 December 2015.
↑ "Portfolio Margining Risk Disclosure Statement" (PDF). optionsexpress.com. Charles Schwab. Retrieved 18 December 2015.

Financial risk and financial risk management

Categories

Credit risk	Concentration risk Consumer credit risk Credit derivative Securitization

Market risk	Commodity risk (e.g. Volume risk, Basis risk, Shape risk, Holding period risk, Price area risk) Equity risk FX risk Margining risk Interest rate risk Volatility risk Liquidity risk (e.g. Refinancing risk)

Operational risk	Operational risk management Legal risk Political risk Reputational risk Valuation risk

Other	Profit risk Settlement risk Systemic risk

Modeling

Market portfolio
Modern portfolio theory
RAROC
Risk-free rate
Risk parity
Sharpe ratio
Value-at-Risk (VaR) and extensions Profit at risk, Margin at risk, Liquidity at risk

Basic concepts

This article is issued from Wikipedia - version of the 5/29/2016. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.