Margin requirements based on a stochastic correlation model

Szabó, Dávid Zoltán and Váradi, Kata (2022) Margin requirements based on a stochastic correlation model. Journal of Futures Markets . DOI

PDF - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader

Official URL:


We demonstrate that margin requirements of central counterparties show a significantly different behavior when calculated with a portfoliowise treatment instead of taking the weighted sum of the margin requirements of the components without accounting for their correlation structures. This is shown via simulating trajectories of a joint stochastic volatility–stochastic correlation model. Results indicate that an unnecessarily large overmargin requirement is set by regulators when the applied risk measure is not calculated via a portfoliowise treatment. Finally, accounting for the correlation structure of the assets during the margining process would not lead to an overly prudent method, nor would it cause greater procyclicality

Item Type:Article
Uncontrolled Keywords:central counterparty, EMIR regulation, initial margin, procyclicality
JEL classification:G15 - International Financial Markets
G17 - Financial Forecasting and Simulation
G18 - General Financial Markets: Government Policy and Regulation
ID Code:7476
Deposited By: MTMT SWORD
Deposited On:01 Jul 2022 10:59
Last Modified:01 Jul 2022 10:59

Repository Staff Only: item control page


Downloads per month over past year

View more statistics