How Do Margin Models Account for Concentration Risk during a Stress Period?
Concentration risk arises when a clearing member holds an excessively large position relative to market capacity. Margin models use 'concentration add-ons' or 'liquidity charges' to increase the margin requirement for such large positions.
This reflects the higher liquidation cost and market impact during a stress period.
Glossar
Portfolio Concentration
Exposure ⎊ Portfolio concentration, within cryptocurrency, options, and derivatives, signifies the proportion of total capital allocated to a singular asset or correlated set of assets.
Concentration Risk
Exposure ⎊ Concentration Risk arises when a significant portion of a protocol's collateral, trading volume, or governance weight is held by a small number of large entities or whales.
Margin Models
Calibration ⎊ Margin models, within cryptocurrency and derivatives, function as quantitative frameworks for determining appropriate risk-adjusted capital allocations against potential losses stemming from market exposures.