NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A client with a cash segment position under VaR margin has a fixed minimum margin component set by the exchange to cover extreme losses beyond normal VaR. What is this component called?
The component is the extreme loss margin. It is collected over and above VaR margin to cover losses that can occur beyond the confidence level assumed in the VaR calculation, giving additional protection against sharp, unusual price moves in cash segment securities.
- AMark-to-market margin
- BExtreme loss marginCorrect
- CSpecial margin on delivery
- DPay-in margin
Explanation
Extreme Loss Margin (ELM) covers losses that may occur beyond the 99% confidence level assumed in VaR. Mark-to-market margin covers notional losses on open positions, so it is a different component.
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