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What Is the Concept of “Stress Testing” in Margin Determination?

Simulating extreme market scenarios to calculate the maximum potential loss, setting margin high enough to cover this loss.
Greeks.Live23.11.25

What Is the Concept of “Stress Testing” in Margin Determination?

Stress testing in margin determination involves simulating extreme but plausible market scenarios, such as a major price crash or a sudden liquidity freeze, to calculate the maximum potential loss a portfolio could incur. The margin requirement is then set high enough to cover this stress-tested loss with a high degree of confidence.

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