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Partners in Risk & Capital Management

Margin Models

Margin Models

The treatment of margin for OTC derivatives has changed considerably since the financial crisis. Recent regulations enforce most derivatives to be centrally cleared through CCPs or margined bilaterally. The industry has developed a common methodology for margining bilateral derivatives (SIMM) which although simple, requires extensive backtesting processes and industry-wide calibration. Banks must ensure they have the correct methodologies and analytics in place to manage the increased costs generated by the new regulatory margin requirements.

Our Approach

We help our clients build the core algorithms required to effectively manage margin. This includes margin calculations, as well as the backtesting processes that ensure the margin being posted is sufficient to tolerate market moves. We also build analytics to help visualise and report the associated risk.

Our Experience

  • Testing and validating SIMM backtesting processes for a Tier 1 US Bank
  • Implementing data proxy methodologies for margin model historical calibration for a Tier 1 Bank
  • Design and implementation of a margin visualisation and reporting framework for a Tier 1 Bank
  • Support for street-wide SIMM calibration project