Workshop on Margin

In the last years, I have reviewed the methodologies of the world largest OTC swap CCPs, read most of the recent related regulatory changes, research the impact of those changes on valuation and implemented most of them in libraries. Those exercises combined with my background in quantitative analysis and trading give me a unique perspective on the changes in the derivative market infrastructure.

As part of the recent advisory engagements related to the above subjects, I ran several workshops on margins in Europe and in the US. Those workshops have been offered as one day or two days programs.

Below are a short summary and the agenda of a typical workshop. The workshops are always tailored to the audience. Don't hesitate to contact me for more information or to request a similar workshop in-house.


One impact of the crisis has been the increase of the spread between different reference rates. Another impact has been the regulatory efforts to try to reduce the systematic credit risk in the inter-dealer market. One direction has been to push vanilla instruments to central counterparties (CCPs) for central clearing and another one is the mandatory bilateral margin for transaction. Those changes have generated a new approach to the valuation and risk management of derivatives, in particular to the vanilla one. The first part of the workshop describes the impact of Variation Margin on the valuation. This is often referred to as the collateral discounting framework and has ramification in swap valuation, curve calibration, risk management in presence of collateral, with the foreign collateral case an important example. In the second part we focus on Initial Margin (IM). IM is one of the CCPs risk management tools; we analyse the specific methodologies used by the main CCPs. IM will become an important part of bilateral relation as it will made mandatory from September 2016; we analyse different current proposal for a standard market methodology.

Previous delivery agenda


Part 1: Variation margin

  • Margin: terminology and fundamentals
  • Clearing/variation margin/initial margin/capital: a regulatory time table
  • Multi-curve framework
  • Valuation under (variation margin) collateral: Overnight rate collateral, Foreign currency collateral, Bonds collateral
  • What information about change of collateral valuation is available in the market?
  • Curve calibration under collateral: OIS discounting and foreign currency collateral
  • Risk management of interest rate risk with foreign currency collateral - sensitivities, basis / Impact on IM methodologies


Part 2: Initial margin

  • CCP specific initial margin methodologies: LCH, CME, Eurex ; CME/LCH basis
  • Bilateral margin: regulatory requirements (focus on Europe/EMIR and/or US regulation)
  • ISDA(R) SIMM proposal (related to FRTB SBA standard approach): main feature, implementation
  • Comparison between CCP margin and bilateral requirements/SIMM
  • Pro-cyclicality features of CCP methodologies - volatility stress-test / Estimation of future Initial Margin
  • Cost of clearing: New member of the xVA family: MVA
  • Numerical challenge of the MVA computation; some methods to reduce the numerical burden
  • Conclusion: Review of the regulatory time-table and the impact on the workload for financial institutions and regulator

Slides and lecture notes are made available to participants at the end of the day.

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