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Home / Collateral Model problem

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This topic contains 1 reply, has 2 voices, and was last updated by  Roland Lichters 1 month ago.

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  • #6289

    jorik
    Participant

    Hi,

    It seems to me that formula (17) in the latest user guide (release 3) has a mistake (I have not checked the code yet, by the way). There you use IA (independent amount) in calculations of collateral required at time t_m. Usually, IA is an extra collateral that must be posted irrespective of the exposure (overcollateralization). According to me, IA (similarly IM) should be used in calculations of exposures and not in variational margins.

    Best Regards,

    Jaroslav

    #6654

    Roland Lichters
    Keymaster

    Hi Jaroslav,

    apologies for the late reply. The Independent Amount in formula (17) that can be specified in the nettingset.xml is in fact taken into account in the variation margin process in ORE, as described in the user guide’s appendix. To be honest, I haven’t seen nonzero IA used in practice, where we have used ORE for XVA with real CSAs. It would be interesting to hear feedback from others in the forum on the use of independent amounts in the variation margin process.
    But note that this Independent Amount is meant to be e.g. different from the Initial Margin that needs to be posted in the bilateral OTC derivatives business since 2016. This Initial Margin is certainly not to be mixed with Variation Margin, and held in different accounts.

    Best regards,
    Roland

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