How Do Portfolio Margining Systems Differ from Standard Cross-Collateralization?
Portfolio margining is a sophisticated system that calculates margin requirements based on the net risk of an entire portfolio, considering offsets and correlations between positions. It is often more capital-efficient than standard cross-collateralization, which simply pools collateral.
Standard cross-collateralization does not necessarily calculate the reduced risk from hedging, while portfolio margining actively seeks to lower margin requirements for well-hedged portfolios.
