How Is the Amount of Initial Margin Calculated by a Central Counterparty (CCP)?

CCPs primarily use a risk-based methodology, such as the SPAN (Standard Portfolio Analysis of Risk) or a proprietary Value at Risk (VaR) model, to calculate initial margin. The calculation involves simulating various adverse market scenarios (stress testing) to determine the maximum potential loss that could occur over a specific liquidation period.

The initial margin required is set to cover this potential loss with a high degree of confidence.