What Is a SPAN Margin?

SPAN system (Standard Portfolio Analysis of Risk, SPAN) In the financial derivatives market, the most mature system for measuring portfolio risk is SPAN (Standard Portfolio Analysis of Risk). Its core concept is similar to VaR.

SPAN system

SPAN system is a portfolio-based margin calculation and

In the derivatives market, not only the risk is linear

The assumption that the SPAN margin system calculates the risk value is that the direction of change of different asset combinations is independent. Therefore, .SPAN first calculates the price risk value of each asset combination, the inter-month spread risk value, and the delivery position risk value. Because the direction of change is assumed to be independent, the price risk value of a single asset group is considered in all of them.

In order to measure the possible profit and loss of each asset combination within a day, SPAN examined the underlying asset prices and possible changes in volatility of all contracts. by

The so-called cross-month spread position risk value refers to the same

SPAN believes that when actual deliverable futures contracts (such as non-ferrous metal futures contracts) expire

Because price fluctuations between different asset portfolios are generally correlated, there will be a certain degree of linkage in the direction of price changes. E.g. LME

In the span of SPAN's estimates, selling extreme out-of-the-money (out-of-the-money) options is almost risk-free, or very low risk. However, if the price of the underlying asset changes significantly, and the option becomes real (in-the-money), the investor who sells the option will face great losses. To include this risk, SPAN set

According to the above description, the SPAN system has the following advantages:

Although the SPAN system has been perfected, there is still room for improvement.

First, there are too many deduction rates between asset portfolios, and calculations are too tedious. When asset portfolio types increase, the spread matching process is complicated;

Second, SPAN underestimated the deductible space when deducting the spread between different asset portfolios of the same asset group. Calculation

SPAN is a comprehensive risk assessment system that can accurately calculate the overall market risk of any investment portfolio, and based on the risk management philosophy of the exchange, calculate the margin that should be collected. SPAN s core calculation module is calculated by the exchange and provided to investors daily for free in the form of parameter files. Investors can quickly risk their own investment portfolios on personal computers as long as they enter their respective position information Analyze and calculate the amount of guarantee required for your position. This simple operation characteristic makes it become the mainstream system for calculating margin in the market after its launch. It has been used by nearly 50 exchanges or settlement organizations around the world. In order to make SPAN applicable to various situations in the market and accurately calculate the margin of any investment portfolio, the system measures the following factors that may affect the amount of guarantee:

1. Changes in the price of the underlying asset;

2. Changes in the price volatility of the underlying assets;

3. The passing of time;

4. Delivery risk of the contract;

5. Changes in the price difference between contracts with different maturity months;

6. Changes in the price correlation between the underlying assets.

On this basis, SPAN constructs the future market situation by combining the changes in the market price of the underlying asset and its fluctuations, and finds a specific investment portfolio over a period of time (usually a trading day). ) The expected maximum loss that could reasonably be suffered. The Exchange determines the amount of guarantee that should be received based on this expected value.

In order to calculate the margin requirements, the exchange will first classify the portfolio positions and treat the commodities with the same or similar subject matter as a combined commodity (CombinedCommodity). In addition, for the convenience of calculation, SPAN further classifies the product combinations into their respective different Commodity Groups.

SPAN calculates margin on the basis of commodity combinations, so SPAN first splits the positions of the portfolio into different commodity combinations, and calculates the risk value for each commodity combination. After the risk value of each commodity group is obtained, the risk value of each commodity group is obtained, and finally the risk value of each commodity group is summed to obtain the risk value of the entire investment portfolio (SPANRisk) determined by SPAN. After SPAN calculates the total risk of the portfolio, it will further calculate the net option value (NetOptionValue) in the portfolio. This value is the cash flow of all option positions in the portfolio immediately after the position is closed based on the market price. SPAN takes the risk value of the entire investment portfolio minus the option's net worth as the guarantee amount (SPANTotalRequirement) charged to the client.

The risk value of each commodity group is the sum of the price scan risk (ScanRisk), the intra-commodity spread risk (Intra-CommoditySpreadRisk), and the delivery risk (DeliveryRisk) after deducting the price difference between product portfolios (Inter -CommoditySpreadRisk), which is the larger value compared with the short risk of the option short (ShortOptionMinimum).

Among them, the price scanning risk refers to the maximum loss that a position may suffer under a variety of possible market conditions (generally set to 16); the cross-month spread risk refers to the premise that the positions in the commodity portfolio allowed by the exchange can be deducted The risk caused by the difference in the price behavior of different expiring contracts; delivery risk refers to the risk that may occur during physical delivery, which is often reflected in the derivatives market transactions as the price volatility of commodity contracts near the delivery period increases. Large; the spread deduction refers to a certain degree of offset effect between different commodity combinations under the same commodity group due to the correlation of price fluctuations; and the minimum risk of an option short is the minimum risk value required for an option short.

Scan the risk value of the same commodity's price, the cross-month spread risk value of different expiration month futures contracts and different expiration month option contracts (only calculated based on the deducted position amount), the futures contract in its delivery month and the option contract in The maturity month's delivery risk value (calculated by dividing the net position amount and the deducted position amount) into three total risk values, and the result is compared with the minimum risk value required for the option short position. The large value is the risk value of the product combination.

The sum of the risk values of all commodity combinations, and then the deduction of the difference between the commodity combinations, is the risk value of the investment portfolio. Generally speaking, only product combinations within the same product group have a price offset. Subtracting the risk value of the investment portfolio from the amount of the option's net worth in the entire investment portfolio gives the final guarantee amount charged by the exchange to the client. ^[2]