Risk Management

Derivative

Variation Margin for derivatives market is calculated using the following formula:

Variation Margin Buy Position Variation Margin Sell Position
Net Settlement Position + Cash Position - Mark to Market Mark to Market - Net Settlement Position + Cash Position

Note:
•    Net Settlement Position = Transaction Volume * Daily Settlement Price
•    Cash Position = Daily profits or losses that have not been settled (open positions) on derivative securities transactions.
•    Mark to Market = Transaction Volume * Last Market Price

The final market price for Variation Margin calculations is divided into two calculation sessions, follows:

  1. Intraday Session (09.00 – 16.00)
    a. Options : Calculation is done using Barone-Adesi and Whaley (BAW) model theoretical price every time options underlying price meets certain conditions and uses batching mechanism.
    b. Futures : Calculation is done every time a transaction occurs (is done) on derivatives market.

  2. Post Trade Session (16.30 - 17.00)
    a. Options : Calculation is done every time a transaction occurs (is done) on derivatives market.
    b. Futures : Calculation is done based on Final Settlement Price on 16.15

For the initial margin calculation, Standard Portfolio Analysis of Risk (SPAN®) is used. SPAN® is a risk calculation method for the portfolio by calculating worst possible loss for a certain period for a derivative instrument using 16 different market conditions scenario named SPAN Risk Array. SPAN Risk Array shows how a portfolio gains or loses in a different combination of change in price, change in volatility and contract maturity.

The SPAN® calculation methodology based on calculation order is as follows:

  1. Interval Margin (MI)
    A measure of the volatility of a derivative instrument expressed in percentage form which is the largest possible daily movement based on historical data.
       
  2. Price Scan Range (PSR)
    Is the worst possible loss for a contract position

  3. SPAN Risk Array
    Is the 16 scenario simulating how the portfolio will gain or lose in various price change combinations, change in volatility, and contract maturity.

a. SPAN Risk 
Is the worst possible loss from 16 Risk Array scenario calculation.

b. Intra-Commodity Scan Charge (KBIE)

The calculation specifically for KBIE products is the additional SPAN Risk per KBIE contract combination added to cover the risk of two or more offsetting positions between the same underlying KBIE assets but with different expiration periods.

c. Short Option Minimum (SOM)

Is a calculation specific for stock options product (KOS).

d. Total SPAN Requirement
Is the total Initial Margin value based on 1 to 6.