Margin Requirement Calculation
19 March 2014
1
What’ s New for Introduction of Stock Futures
Introduce Inter-commodity Spread Credit
Margin Requirements are separately calculated:
Derivatives on Equity Index market
Derivatives on Metal market
Derivatives on Single Stock Market
2
Margin Calculation
Scanning Risk
Inter-month Spread
Charge
+
+
Delivery Month Charge
Input:
Delta
-
Net Options Value
(Mark-to-market of
Options)
MAX
Maintenance Margin Requirement
Margin Requirement in each market
ΣMargin Requirement in each market
If Margin Requirement in any market ≤ 0, it will be treated as 0
+
Mark to market of Futures in all markets
+
Inter-commodity
Spread Credit
-
Short
Option
Minimum
Charge
Additional Margin for all markets
(Concentration margin + Super margin + Uncovered Risk margin)
3
What’ s New for Introduction of Stock Futures
Margin Requirement of F & O in Equity Index Market
Margin Requirement in Equity Index Market ≤ 0 = 0
Margin Requirement of F & O on XXX
Margin Requirement of F & O in Metal Market
Margin Requirement in Metal Market ≤ 0 = 0
Margin Requirement of F & O on Gold
Margin Requirement of F & O on YYY
Margin Requirement of F & O in Single Stock Market
Margin Requirement in Single Stock Market ≤ 0 = 0
Underlying: AAA
Futures, Options,
Options on Futures
Underlying: BBB
Futures, Options,
Options on Futures
Inter-month Spread Charge
Inter-month Spread Charge
Inter-Commodity Spread Credit
Inter-Commodity Spread Credit
Margin Requirement of F & O on AAA
Margin
Requirement of F & O on BBB
4
+
Margin Requirement of F & O on S50
Scanning Risk/Risk-based Margining
It quantifies Maximum potential loss of entire portfolio
that might reasonably incur over a specified period of
time under virtually simulated market scenarios.
99% Confidence Interval
1-day liquidation period
Sixteen “What if” Scenarios
5
An introduction to Inter-commodity Spread Credit
It is a price risk of spread position (risk arising from the
variation in underlying contract price)
Loss in one commodity may be offset by
gain in other commodities
It helps reduce margin requirement
It is applied for
Net Margining Account Only
6
Margin Requirement Calculation: Disclaimer
•
Explain margin requirement calculation of
Derivatives on Single stock only
• Do not provide system and application
requirements, TFEX contract specification, TCH
maintenance margin rate, inter-month spread
charge rate, inter-commodity spread credit rate
• Data in presentation are subject to change at any
time without any prior notification
• TCH definitely assumes no liability on any change
in parameters and data in presentation
7
Margin Requirement Calculation: Examples
Assumptions
•
Underlying Stocks: ABC, DEF, GHI
•
Futures Multiplier: 100 stocks
•
Options Multiplier: 100 stocks Options delta scaling factor = 1
•
Contract month: Quarterly
•
Margin Requirement is calculated on the basis of Net Margining
•
Maintenance Margin Rates & Short Option Minimum Charge are as follows;
Series
Outright Maintenance
Margin Rate
(Baht/contract)
Inter-month
Spread Charge
(Baht/pair)
Short Option
Minimum Charge
(Baht/contract)
ABC
3,000
750
300
DEF
4,000
1,000
0
GHI
5,000
1,250
0
8
NET MARGINING
Features
Both long and short positions of futures and options
contracts will be used for calculation.
Not only will “Inter- month Spread Charge” but also
“Inter- commodity Spread Credit” will be applied.
Both long and short options positions will be applied
for “Net Options Value”.
9
NET MARGINING
Calculation Steps
1. Calculate Net of Scanning Loss in each scenario.
Options : Risk Array * Long Positions (+) or Short Positions (-)
Futures : Risk Array * Long Positions (+) or Short Positions (-)
2. Select Maximum Portfolio Scanning Loss of each scenario
Scanning Risk = Max (Value,0)
3. Calculate Inter-month Spread Charge (IMSC)
IMSC = Min (Absolute of Positive Net Delta, Absolute Value of Net
Negative Delta) * Spread Charge Rate
4. Calculate Inter-commodity Spread Credit (ICSC)
ICSC = Weighted Futures Price Risk * Credit Rate * No. of Spreads *
Delta Per Spread Ratio
10
NET MARGINING
Calculation Steps
5. Select the higher value between “Scanning Risk + Inter-month
Spread Charge - Inter-commodity Spread Credit” and “Short Option
Minimum Charge”
6. Calculate Margin Requirement (MR)
MR = Maximum Value of Risk Maintenance Margin (Outcome
from Step 5) minus “Net Options Value” (Mark to Market of
Options)
11
GROSS MARGINING
Features
Both long and short futures positions will be used for
calculation.
Only short options positions will be used for calculation.
Neither “Inter- month Spread Charge” nor “Intercommodity Spread Credit” will be applied.
Only short options positions will be calculated for “Net
Options Value”.
12
GROSS MARGINING
Calculation Steps
1. Calculate Scanning Loss of each series in each scenario.
Options : Risk Array * Short Positions (-)
Futures : Risk Array * Long Positions (+), and;
: Risk Array * Short Positions (-)
2. Select Maximum Scanning Loss of each series separately
Scanning Risk = Max (Value, 0)
3. Select the higher value between “Scanning Risk” and “Short Option
Minimum Charge”
4. Calculate Margin Requirement (MR)
MR = Maximum Value of Outcome from Step 3 minus “Net
Options Value”
13
Margin Requirement Calculation: Examples
•
Investment in portfolio is as follows;
Series
Long
Short
Marginable
Position
ABCU08
20
5
+15
8
-8
ABCZ08
ABCZ08C150
4
7
-3
DEFZ08
3
1
+2
4
-4
DEFH09
GHIU08
GHIM09
8
+8
6
Gross Position
14
-6
Net Position
Risk Scenario
Sixteen Risk scenarios ประกอบด้วย:
– Underlying Price Change
• ราคาไม่เปลีIยนแปลง
• ราคาเปลีIยนแปลงเพิIมขึนQ หรือลดลง 1/3 ของ Price scan range
• ราคาเปลีIยนแปลงเพิIมขึนQ หรือลดลง 2/3 ของ Price scan range
• ราคาเปลีIยนแปลงเพิIมขึนQ หรือลดลง 1 เท่า (3/3) ของ Price scan range
• ราคาเปลีIยนแปลงเพิIมขึนQ หรือลดลงอย่างรุนแรงเกินกว่าทีIกาํ หนด
– Volatility Change
• Volatility เพิIมขึนQ
• Volatility ลดลง
• Volatility ไม่เปลีIยนแปลง
Liquidation Period: 1 day
ค่าความเสีIยงทีIแสดงใน Risk array
– “+” value: loss
– “-”
” value: gain
15
Risk scenarios
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
Underlying Price
Unchanged
Unchanged
Up 1/3 Price Scanning Range
Up 1/3 Price Scanning Range
Down 1/3 Price Scanning Range
Down 1/3 Price Scanning Range
Up 2/3 Price Scanning Range
Up 2/3 Price Scanning Range
Down 2/3 Price Scanning Range
Down 2/3 Price Scanning Range
Up 3/3 Price Scanning Range
Up 3/3 Price Scanning Range
Down 3/3 Price Scanning Range
Down 3/3 Price Scanning Range
Up Extreme (cover certain %)
Down Extreme (cover certain %)
16
Volatility Change
Up
Down
Up
Down
Up
Down
Up
Down
Up
Down
Up
Down
Up
Down
Unchanged
Unchanged
Risk Array & Scanning risk
Scanning Loss = Risk Array * Net Positions in each series
– Long Position
+
– Short Position
Quantify Scanning Risk over a commodity (same underlying)
Scanning Risk is Max Scanning Loss of Portfolio among
simulated sixteen scenarios (Max Σ Scanning Loss of each
series)
The risk scenario that gives a Scanning Risk is called “the
active scenario”
Scanning Risk ≥ 0
Both long and short futures positions will be taken into A/C.
For Net Margining, both long and short options positions will
be taken in to A/C, while Gross Margining, only short options
positions will be taken.
17
Risk Array & Scanning risk
Futures & Options on ABC
ABCU08
Scenario
ABCZ08
ABCZ08C150
Total
Long 15
Loss/contract
Losses
Short 8
Loss/contract
Losses
Short 3
Loss/contract
Losses
Losses
1
+15 x
0
0
-8 x
0
0
-3 x
-650
1,950
1,950
2
+15 x
0
0
-8 x
0
0
-3 x
525
-1,575
-1,575
3
+15 x
-1,000
-15,000
-8 x
-1,000
8,000
-3 x
-1,000
3,000
-4,000
4
+15 x
-1,000
-15,000
-8 x
-1,000
8,000
-3 x
-850
2,550
-4,450
5
+15 x
1,000
15,000
-8 x
1,000
-8,000
-3 x
250
-750
6,250
6
+15 x
1,000
15,000
-8 x
1,000
-8,000
-3 x
1,800
-5,400
1,600
7
+15 x
-2,000
-30,000
-8 x
-2,000
16,000
-3 x
-2,000
6,000
-8,000
8
+15 x
-2,000
-30,000
-8 x
-2,000
16,000
-3 x
-2,250
6,750
-7,250
9
+15 x
2,000
30,000
-8 x
2,000
-16,000
-3 x
1,750
-5,250
8,750
10
+15 x
2,000
30,000
-8 x
2,000
-16,000
-3 x
2,250
-6,750
7,250
11
+15 x
-3,000
-45,000
-8 x
-3,000
24,000
-3 x
-2,750
8,250
-12,750
12
+15 x
-3,000
-45,000
-8 x
-3,000
24,000
-3 x
-2,500
7,500
-13,500
13
+15 x
3,000
45,000
-8 x
3,000
-24,000
-3 x
425
-1,275
19,725
14
+15 x
3,000
45,000
-8 x
3,000
-24,000
-3 x
650
-1,950
19,050
15
+15 x
-2,700
-40,500
-8 x
-2,700
21,600
-3 x
-1,750
5,250
-13,650
16
+15 x
2,700
40,500
-8 x
2,700
-21,600
-3 x
350
-1,050
17,850
Delta
1
Scanning Risk
1
=
0.3
19,725 and active scenario is the scenario 13
18
Risk Array & Scanning risk
Futures & Options on DEF
DEFZ08
Scenario
Long 2
DEFH09
Loss/contract
Losses
Short 4
Total
Loss/contract
Losses
Losses
1
+2 x
0
0
-4 x
0
0
0
2
+2 x
0
0
-4 x
0
0
0
3
+2 x
-1,333
-2,666
-4 x
-1,333
5,332
2,666
4
+2 x
-1,333
-2,666
-4 x
-1,333
5,332
2,666
5
+2 x
1,333
2,666
-4 x
1,333
-5,332
-2,666
6
+2 x
1,333
2,666
-4 x
1,333
-5,332
-2,666
7
+2 x
-2,667
-5,334
-4 x
-2,667
10,668
5,334
8
+2 x
-2,667
-5,334
-4 x
-2,667
10,668
5,334
9
+2 x
2,667
5,334
-4 x
2,667
-10,668
-5,334
10
+2 x
2,667
5,334
-4 x
2,667
-10,668
-5,334
11
+2 x
-4,000
-8,000
-4 x
-4,000
16,000
8,000
12
+2 x
-4,000
-8,000
-4 x
-4,000
16,000
8,000
13
+2 x
4,000
8,000
-4 x
4,000
-16,000
-8,000
14
+2 x
4,000
8,000
-4 x
4,000
-16,000
-8,000
15
+2 x
-3,600
-7,200
-4 x
-3,600
14,400
7,200
16
+2 x
3,600
7,200
-4 x
3,600
-14,400
-7,200
Delta
Scanning Risk
1
=
1
8,000 and active scenario is the scenario 11
19
Risk Array & Scanning risk
Futures & Options on GHI
GHIU08
Scenario
Long 8
GHIM09
Loss/contract
Losses
Short 6
Total
Loss/contract
Losses
Losses
1
+8 x
0
0
-6 x
0
0
0
2
+8 x
0
0
-6 x
0
0
0
3
+8 x
-1,667
-13,336
-6 x
-1,667
10,002
-3,334
4
+8 x
-1,667
-13,336
-6 x
-1,667
10,002
-3,334
5
+8 x
1,667
13,336
-6 x
1,667
-10,002
3,334
6
+8 x
1,667
13,336
-6 x
1,667
-10,002
3,334
7
+8 x
-3,333
-26,664
-6 x
-3,333
19,998
-6,666
8
+8 x
-3,333
-26,664
-6 x
-3,333
19,998
-6,666
9
+8 x
3,333
26,664
-6 x
3,333
-19,998
6,666
10
+8 x
3,333
26,664
-6 x
3,333
-19,998
6,666
11
+8 x
-5,000
-40,000
-6 x
-5,000
30,000
-10,000
12
+8 x
-5,000
-40,000
-6 x
-5,000
30,000
-10,000
13
+8 x
5,000
40,000
-6 x
5,000
-30,000
10,000
14
+8 x
5,000
40,000
-6 x
5,000
-30,000
10,000
15
+8 x
-4,500
-36,000
-6 x
-4,500
27,000
-9,000
16
+8 x
4,500
36,000
-6 x
4,500
-27,000
9,000
Delta
Scanning Risk
1
=
1
10,000 and active scenario is the scenario 13
20
Inter-month Spread Charge
Apply for NET MARGINING ACCOUNT only
During calculating scanning risk, it assumes a perfect
correlation between price movements in each series among
different expiry
Delta is used to calculate “Spread”
– Futures always has “+1”
– Call options always have value in between
0 ≤ Delta ≤ +1
– Put options always have value in between
-1 ≤ Delta ≤ 0
21
Inter-month Spread Charge (cont.)
Calculate Position deltas of every series
Position Delta of Series i = Delta of series i * Net Position of series i *
Delta Scaling Factor
Net Long Position
+
Net Short Position
-
Net Delta by sum of position deltas of every series within the same
contract month
n 

∑  Deltai * Net Positioni * Delta Scaling Factor 
i =1
Sum of Positive Net Delta and Sum of Negative Net Delta (rounded to 4
decimals)
Inter-month Spread Charge = Minimum (Absolute Value of Positive Net
Delta, Absolute Value of Negative Net Delta) * Spread Charge
Note:
Absolute value of a number is the number without its sign
Inter-month Spread Charge is rounded to integer
Net Delta =
22
Inter-month Spread Charge (cont.)
Futures & Options on ABC
ABCU08
ABCZ08
ABCZ08C150
Composite Delta
1.00
1.00
0.30
Position
+15
-8
-3
1
1
1
+15
-8
-0.9
Delta Scaling Factor
Net Position Delta of each series
U08
Net Positive Delta per contract month
& Net Negative Delta per contract
month
+15.0000
Min (Absolute Value of Net Positive
Delta per contract month, Absolute
Value of Net Positive Delta per
contract month)
Inter-month Spread Charge
Z08
-8.9000
8.9000
=
8.9 * 750
= 6,675
Net Delta of ABC = 15 +(– 8.9) = 6.1000
23
Inter-month Spread Charge (cont.)
Futures & Options on DEF
DEFZ08
Composite Delta
Position
Delta Scaling Factor
Net Position Delta of each series
DEFH09
1
1
+2
-4
1
1
+2
-4
Z08
Net Positive Delta per contract month &
Net Negative Delta per contract month
+2.0000
Min (Absolute Value of Net Positive Delta
per contract month, Absolute Value of
Net Positive Delta per contract month)
Inter-month Spread Charge
=
H09
2 * 1,000
2.0000
= 2,000
Net Delta of DEF = 2 + (– 4) = -2.0000
24
-4.0000
Inter-month Spread Charge (cont.)
Futures & Options on GHI
GHIU08
Composite Delta
Position
Delta Scaling Factor
Net Position Delta of each series
GHIM09
1
1
+8
-6
1
1
+8
-6
U08
Net Positive Delta per contract month &
Net Negative Delta per contract month
+8.0000
Min (Absolute Value of Net Positive Delta
per contract month, Absolute Value of Net
Positive Delta per contract month)
Inter-month Spread Charge
=
6 * 1,250
Net Delta of GHI = 8 + (– 6) = 2.0000
25
M09
-6.0000
6.0000
= 7,500
Inter-commodity Spread Credit
Apply for NET MARGINING ACCOUNT only
Losses in one commodity may offset gain in other
commodities
Price Risk must be isolated from the Scanning risk
Price Risk = Max (0, Active Scenario – Time Risk - Volatility risk)
Note:
1. The active scenario is the risk scenario that gives the maximum loss of the
entire portfolio (highest positive number)
2. If two scenarios result in the same number, the one with the lowest scenario
number is chosen as the active scenario
26
Inter-commodity Spread Credit (cont.)
Volatility-adjusted Scanning Risk
Step 1: Eliminate volatility risk from “the active scenario”
– Find the two scenarios with the same underlying price
variation but with the difference volatility variation
Active Scenario
1 3 5 7
9 11 13 15 16
Paired Scenario
2 4 6 8 10 12 14 15 16
Active Scenario
2 4 6 8 10 12 14 15 16
Paired Scenario
1 3 5 7
9 11 13 15 16
Note:
• If active scenario number is “odd number”
Paired scenario number = Active scenario number +1
• If active scenario number is “even number”
Paired scenario number = Active scenario number – 1
• Scenario 15 and 16 are paired with itself because of no volatility
variation
27
Inter-commodity Spread Credit (cont.)
Volatility-adjusted Scanning Risk
– Average of the active scenario and paired scenario yields
the “volatility-adjusted scanning risk”
(Volatility-adjusted scanning risk = Active Scenario – Volatility Risk)
Volatility-adjusted scanning risk = (Value in active scenario) + (Value in paired scenario)
(Active Scenario – Volatility Risk)
2
Volatility Risk = Active Scenario – Volatility-adjusted scanning risk
Note: Volatility Risk is rounded to integer while Volatility-adjusted scanning
risk is not rounded .
28
Inter-commodity Spread Credit (cont.)
Time Risk
Step 2: Eliminate time risk from “the volatility-adjusted
scanning risk”
– Scenario 1 and Scenario 2 do not consider of underlying
price variation, they only consider volatility variation
Time risk
=
(Value in Scenario 1) + (Value in Scenario 2)
2
Note: Time Risk is rounded to integer.
29
Inter-commodity Spread Credit (cont.)
Price Risk
Step 3: Calculate Price Risk
Price Risk = Max (0, Active Scenario - Time Risk - Volatility risk)
Weighted Futures Price Risk
Step 4: Calculate “Weighted Futures Price Risk” (WFPR)
for each commodity
– Dividing price risk with Absolute Value of Summation of Net
Delta
Weighted Futures Price Risk = Price Risk / Absolute Value of Net Delta
(WFPR)
Note:
• This value (WFPR) is rounded to 2 decimals
• A negative result will be treated as zero
• If Net Delta equals zero, WFPR will equal zero
30
Inter-commodity Spread Credit (cont.)
Inter-commodity Spread Credit
Step 5: Calculate Inter-commodity Spread Credit
Inter-commodity Spread Credit = WFPR * Delta Consumed per
Spread Position * No. of Spreads
* Credit Rate
Note:
• Number of Spreads must be first calculated per combined commodity group
• Number of Spreads is rounded to 4 decimals
• This value (inter-commodity spread credit) is rounded to integer
31
Inter-commodity Spread Credit (cont.)
Example: Given information
This information is shown in RPF (Record Type 5 and Record Type 6)
Combined Commodity Group: S01 (Record Type 5)
Priority List and Credit Rate in each combined commodity group
(Record Type 6)
Priority
List
Credit
rate
CC
L1
Delta per
spread
ratio
Side of
Market
CC
L2
L1
L1
Delta per
Spread
Ratio
Side of
Market
L2
L2
1
80%
ABC
3
A
DEF
2
B
2
60%
ABC
1
A
GHI
1
A
Note: 1. Priority List is a Spread Priority
2. CC represents combined commodity code
3. Delta per spread ratio is the delta consumed when calculate Number of
Spreads
4. Side of Market represents the spread side. A:B indicates the deltas of each
spread leg have opposite signs
32
Inter-commodity Spread Credit (cont.)
Futures & Options on ABC
Step 1: Calculate Volatility-adjusted Scanning Risk
Active Scenario is Scenario 13, therefore, a paired scenario is Scenario 14
Volatility-adjusted Scanning Risk = (19,725 + 19,050)/2
= 19,387.50
Volatility Risk = 19,725 – 19,387.50 = 337.50 ≈ 338.00
Step 2: Calculate Time Risk
Time risk is an average of scanning risk in Scenario 1 and Scenario 2
Time Risk
=
1,950 + (-1,575)
= 187.5 ≈ 188.00
2
Step 3: Calculate Price Risk
Price Risk = Max (0, Active Scenario - Time Risk - Volatility risk)
Price Risk
=
19,725 – 188 – 338
= 19,199.00
Step 4: Calculate Weighted Futures Price Risk
Calculate Net Delta of this combined commodity using Delta of each contract month in
inter-month spread charge calculation step
Net Delta
= 15 – 8.9 = 6.1000 (page 27)
Absolute Net Delta
=
6.1000
Weighted Futures Price Risk
= 19,199
= 3,147.38
6.10
33
Inter-commodity Spread Credit (cont.)
Futures & Options on ABC
Step 5: Calculate Inter-commodity Spread Credit
– Calculate Number of Spreads (Spread Position) of each combined commodity
group (in this case, Combined Commodity Group: S01)
– Use Delta “consumed” in a pair (Delta per Spread Ratio) to calculate Number of
Spreads (Spread position is rounded to 4 decimals)
Priority 1: Spread Position between ABC vs. DEF
– Net Delta of ABC
= 6.1000
 Market Side A
– Net Delta of DEF
= 2 – 4 = - 2.0000  Market Side B (page 28)
Spread Position
=
Minimum (Absolute Net Delta of ABC/Delta required per
Spread of ABC in priority 1, Absolute Net
Delta of DEF/Delta required per spread
of DEF in priority 1)
Spread Position
=
Min(6.10/3, 2/2) = Min (2.03, 1)
Priority 1: Number of Spreads = 1
Delta Consumed of ABC = 3, Delta Unconsumed of ABC = 6.1000 – 3.0000 = 3.1000
Delta Consumed of DEF = - 2, Delta unconsumed of DEF = 0
34
Inter-commodity Spread Credit (cont.)
Futures & Options on ABC
Step 5: Calculate Inter-commodity Spread Credit
Priority 2: Spread Position between ABC vs. GHI
– Net Delta of ABC
= 3.1000 (Delta unconsumed from Priority 1)  Market Side A
– Net Delta of GHI
= 8 – 6 = 2.0000
 Market Side A
Spread Position
=
Minimum (Absolute Net Delta of ABC/Delta required per
Spread of ABC in priority 2, Absolute Net
Delta of GHI/Delta required per spread of GHI in
priority 2)
Spread Position
=
Min(3.10/1, 2/1) = Min (3.10, 2)
Priority 2: Number of Spreads = 2
Delta Consumed of ABC = 2, Delta Unconsumed of ABC = 3.1000 – 2.0000 = 1.1000
Delta Consumed of GHI = 2, Delta unconsumed of GHI = 0
35
Inter-commodity Spread Credit
Futures & Options on ABC
Step 5: Calculate Inter-commodity Spread Credit Amount
Inter-commodity Spread Credit = WFPR * No. of Spreads * Delta Per Spread Ratio *
Credit Rate
– Credit for Priority 1
= 3,147.38 * 1 * 3 * 0.8 = 7,554
– Credit for Priority 2
= 3,147.38 * 2 * 1 * 0.6 = 3,777
Total Inter-commodity Spread Credit of ABC
36
=
7,554 + 3,777
=
11,331
Inter-commodity Spread Credit (cont.)
Futures & Options on DEF
Step 1: Calculate Volatility-adjusted Scanning Risk
Active Scenario is Scenario 11, therefore, a paired scenario is Scenario 12
Volatility-adjusted Scanning Risk =
(8,000 + 8,000)/2 = 8,000
Volatility Risk = 8,000 – 8,000 = 0
Step 2: Calculate Time Risk
Time risk is an average of scanning risk in Scenario 1 and Scenario 2
Time Risk
=
0+0 =
0
2
Step 3: Calculate Price Risk
Price Risk = Max (0, Active Scenario - Time Risk - Volatility risk)
Price Risk
=
8,000 – 0 - 0
=
8,000
Step 4: Calculate Weighted Futures Price Risk
Calculate Net Delta of this combined commodity
Absolute Net Delta
=
Weighted Futures Price Risk
=
2.0000 – 4.0000 = - 2.0000
2.0000
=
=
8,000
2.0000
37
4,000
Inter-commodity Spread Credit (cont.)
Futures & Options on DEF
Step 5: Calculate Inter-commodity Spread Credit
– Use Number of Spreads that are calculated in the previous step (spread position
between ABC and DEF)
Priority 1: Spread Position between ABC vs. DEF
Priority 1: Number of Spreads = 1
Inter-commodity Spread Credit
– Credit for Priority 1
=
=
WFPR * No. of Spreads * Delta Per Spread Ratio
* Credit Rate
4,000 * 1 * 2 * 0.8 = 6,400
Total Inter-commodity Spread Credit of DEF
38
=
6,400
Inter-commodity Spread Credit (cont.)
Futures & Options on GHI
Calculate Inter-commodity Spread Credit for GHI
Step 1: Calculate Volatility-adjusted Scanning Risk
Active Scenario is Scenario 13, therefore, a paired scenario is Scenario 13
Volatility-adjusted Scanning Risk = (10,000 + 10,000)/2
= 10,000
Volatility Risk = 10,000 – 10,000 = 0
Step 2: Calculate Time Risk
Time risk is an average of scanning risk in Scenario 1 and Scenario 2
Time Risk
=
0+0
=
0
2
Step 3: Calculate Price Risk
Price Risk = Max (0, Active Scenario - Time Risk - Volatility risk)
Price Risk
=
10,000 - 0 - 0 =
10,000
Step 4: Calculate Weighted Futures Price Risk
Calculate Net Delta of this combined commodity
Absolute Net Delta
=
Weighted Futures Price Risk
= 8-6 = 2
2.0
=
10,000
2
=
39
5,000
Inter-commodity Spread Credit (cont.)
Futures & Options on GHI
Step 5: Calculate Inter-commodity Spread Credit
– Use Number of Spreads that are calculated in the previous step (spread position
between ABC and GHI)
Priority 2: Spread Position between ABC vs. GHI
Priority 2: Number of Spreads = 2
Inter-commodity Spread Credit
– Credit for Priority 2
=
=
WFPR * No. of Spreads * Delta Per Spread Ratio
* Credit Rate
5,000 * 2 * 1 * 0.6 = 6,000
Total Inter-commodity Spread Credit of GHI
40
=
6,000
Short options minimum charge (SOMC)
For short options that is very deep out of the money, it is
almost impossible to calculate the Scanning Risk Charge
Therefore, it imposes the minimum charge upon the short
option positions
Net Margining :
- SOMC = (Short Calls + Short Puts) * Short Options
Minimum Charge * Delta Scaling Factor
Gross Margining :
- SOMC = Short Calls * Short Options Minimum
Charge * Delta Scaling Factor, and;
= Short Puts * Short Options Minimum
Charge * Delta Scaling Factor
41
Short Options Minimum Charge
Futures & Options on ABC
Short Options Minimum Charge of ABC
=
3 * 300 =
=
0
=
0
Futures & Options on DEF
Short Options Minimum Charge of DEF
Futures & Options on GHI
Short Options Minimum Charge of GHI
42
900
Net Options Value
The cost to liquidate the portfolio at current market prices
It represents market value of the option positions.
- Long Position Value = Long Option Position(+) * EOD
Settlement Price * Multiplier
- Short Position Value = Short Option Position(-) * EOD
Settlement Price * Multiplier
Remark : On last trading day, the expiring positions will not be
calculated.
Net Options Value = (Long Option Value – Short Option Value)
- Net Margining;
Net Options Value = (Long Option Value – Short Option Value)
- Gross Margining;
Net Options Value = (0 – Short Option Value)
43
Net Options Value
Futures & Options on ABC
Given Settlement Price of ABCZ08C150
Net Options Value of ABCZ08C150
=
=
Futures & Options on DEF
No options position
Futures & Options on GHI
No options position
44
5
- 3 * 5 *100 =
- 1,500
Margin Requirement
Margin Requirement of DEF
Margin Requirement of ABC
Scanning Risk
Scanning Risk
19,725
8,000
+
+
Inter-month
Spread Charge
Inter-month
Spread Charge
6,675
2,000
+
+
Short
Delivery Month
Charge
Delivery Month
Charge
Option
Minimum
Not
Applicable
Minimum
Charge
-
-
Intercommodity
Spread Credit
Intercommodity
Spread Credit
11,331
6,400
15,069
Option
Not
Applicable
Charge
Short
900
Max
3,600
Risk Maintenance Margin
15,069
-
Margin Requirement
16,569
Max
0
Net Options Value
Risk Maintenance Margin
-1,500
3,600
Net Options Value
-
Margin Requirement
3,600
0
Margin Requirement
Margin Requirement of GHI
Margin Requirement of F & O on
Scanning Risk
Single Stock Market
10,000
+
= Margin Requirement of ABC
Inter-month
Spread Charge
+ Margin Requirement of DEF
7,500
+
+ Margin Requirement of GHI
Short
Delivery Month
Charge
Option
= 16,569 + 3,600 + 11,500
Minimum
Not
Applicable
Charge
= 31,669
-
If Margin Requirement of F & O on
Intercommodity
Spread Credit
Single Stock Market ≤ 0 0
6,000
11,500
0
Max
Net Options Value
Risk Maintenance Margin
11,500
-
Margin Requirement
11,500
0