Why Are Tail Risk Events Particularly Important for Derivatives Margin?
Tail risk events, which are low-probability, high-impact occurrences, are crucial because derivatives, especially options, can generate non-linear and disproportionately large losses in extreme market moves. Margin must be sufficient to cover these rare but catastrophic losses to prevent a CCP failure and systemic crisis.
Glossar
Tail Risk Events
Event ⎊ The confluence of low-probability, high-impact occurrences within cryptocurrency markets, options trading, and financial derivatives represents a significant challenge for risk management.
Tail Risk
Exposure ⎊ Tail risk refers to the potential for an investment or portfolio to experience extreme, unexpected losses that occur in the "tails" of a probability distribution, far beyond what traditional risk models might predict.