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FRM Part II · FRM Exam Part II · Margin (Collateral) and Settlement

A risk manager estimates the exposure of a collateralised netting set using a margin period of risk (MPOR). Which event is the MPOR intended to capture?

The margin period of risk is the time from the last successful variation margin exchange until the defaulted counterparty's positions are closed out and hedged. Market moves during this window are not covered by collateral, so exposure is simulated over it.

  1. AThe time between the last successful exchange of variation margin and the point when the defaulted counterparty's position is closed out and hedgedCorrect
  2. BThe remaining maturity of the longest trade in the netting set
  3. CThe interval between two scheduled valuation dates of the CSA, regardless of disputes
  4. DThe period over which the initial margin haircut on posted securities is amortised

Explanation

MPOR covers the delay from the last margin call that was met through default recognition, collateral dispute resolution, close-out and replacement of the position. Exposure is modelled over this window because market moves in it are uncollateralised. It is not trade maturity or a valuation schedule.

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