How Does a Margin Model Account for the Jump Risk Inherent in Cryptocurrency Markets?

Margin models account for jump risk (sudden, large, discontinuous price movements) by using extreme stress scenarios in their calculation. They often employ historical data that includes major price crashes or 'fat-tail' events.

The model's confidence interval is set higher (e.g. 99.9%) or a specific 'jump' parameter is added to the model to ensure the required margin is sufficient to cover losses from these unpredictable events.