Explain the Role of the “Rebalancing” Process in a Portfolio Margin Account for Derivatives.
Rebalancing in a portfolio margin account involves adjusting the composition of the portfolio to maintain a desired risk level or target allocation. For derivatives, this often means adjusting the hedge ratio (e.g. delta-neutral) as market prices change.
Unlike a standard margin account, portfolio margin calculates risk across all positions, allowing for lower overall margin requirements, but requiring continuous rebalancing to manage the combined risk exposure.
