Derivatif Margin

Variation Margin for derivatives market is calculated using the following formula:

Note:
•    Net Settlement Position = Transaction Volume * Daily Settlement Price
•    Cash Position = Unsettled (open position) daily Gain/Loss
•    Mark to Market = Transaction Volume * Last Market Price

The last market price is divided into 2 calculation sessions:

1. Intraday Session (09.00 – 16.00)
  a. Options : Calculation is done using Barone-Adesi and Whaley (BAW) model theoretical price every time 
    options underlying price meets certain conditions and uses batching mechanism.
  b. Futures : Calculation is done every time a transaction occurs (is done) on derivatives market.
2. Post Trade Session (16.30 - 17.00)
  a. Options : Calculation is done every time a transaction occurs (is done) on derivatives market.
  b. Futures : Calculation is done based on Final Settlement Price on 16.15

For the initial margin calculation, Standard Portfolio Analysis of Risk (SPAN®) is used. SPAN® is a risk calculation method for the portfolio by calculating worst possible loss for a certain period for a derivative instrument using 16 different market conditions scenario named SPAN Risk Array. SPAN Risk Array shows how a portfolio gains or loses in a different combination of change in price, change in volatility and contract maturity.

The SPAN® calculation methodology based on calculation order is as follows:

1. Interval Margin (MI)
  Is the volatility measure for a derivative instrument stated in percentage of possible largest daily movement based on historical prices within 20 days, 90 days, and 260 days.

    

2. Price Scan Range (PSR)
  Is the worst possible loss for a contract position

      

  Note :
  MI  = Interval Margin       
  Po  = Futures uses Daily Settlement Prices, while Stock Options uses Theoretical Prices (Barone-Adesi and Whaley - BAW
  Contract Size = 500,000 for Futures and 10,000 for Stock Options 

 

3. SPAN Risk Array
  Is the 16 scenario simulating how the portfolio will gain or lose in various price change combinations, change in volatility, and contract maturity.

        

 4. SPAN Risk 
  Is the worst possible loss from 16 Risk Array scenario calculation.

         

5. Intra-Commodity Scan Charge (ICSC)
  Is a specific calculation for futures with index securities as underlying (KBIE).ICSC is the additional SPAN Risk per futures contract to cover two or more risks of positions that cover each other between the same futures underlying asset but different contract maturities.
  Risk occurs when historically the assets do not have perfect correlation, so the more correlated the futures underlying assets the less risk and vice versa the less correlated the futures underlying assets, the more risk and greater margin is required to cover the risk
   
  The contract combination mentions is when a derivative portfolio has the following compositions: (futures product assumption:LQ45,LQ45B,LQ45C. Where A is 1 is a month contract, B is a 2 month contract, and C is a 3 month;contract)
   i. 1 unit long LQ45A;1 unit short LQ45B( or vice versa )
   ii. 1 unit long LQ45A;1 unit short LQ45C( or vice versa )
   iii. 1 unit long LQ45B;1 unit short; LQ45C(or vice versa)
   iv. 1 unit long LQ45;2 unit short LQ45B;1 unit long LQ45C(\or vice versa)
  The unit value of two or more for positions that cover each other must be the same. For example 1 with 1, 2 with 2, 3 with 3 etc. For combination number 4, example 1 with 2 with 1, 2 with 4 with 2 etc.
  To obtain ICSC value, the following formula is used:

              

Note:
•   n = settlement time frame (in this case 1 day)
•   σ = net profit or loss standard deviation between two or more futures product for 20, 90, and 260 days
•   2.335  =  99% confidence level under normal distribution

6. Short Option Minimum (SOM)
  Is a calculation specific for stock options product (KOS).The short position in KOS transaction has unlimited loss possibility for extreme price changes, which is different than a long position that has a limited loss which is as much as the premium paid.
   
  Therefore, under a deep out of the money state (short call: the strike price is well above the spot price or the short put: the strike price far below the spot price) then the value of the contract will be close to 0 so that the SPAN risk value will be close to zero, so SOM limit becomes the minimum margin on KOS transactions if under extreme conditions the deep out of the money changed significantly to in the money (short call: the strike price is below the spot price, or short put: the strike price is above the spot price) which means losses for short position holders.
   
  SOM will be the initial margin replacing the value of the SPAN risk if the value exceeds the SPAN Risk value. To get the SOM value, the following formula is used:

               

Note:

•  MI = Interval Margin
•  Po = Spot Price for KOS Underlying;
• SOM Rate = Different SOM percentage for each underlying instrument based on underlying volatility in extreme periods.
•  Contract Size = 10.000

7. Total SPAN Requirement
  Is the total Initial Margin value based on 1 to 6 calculation as follows: