SIMM


FinPricing offers:

Four user interfaces:

  • Data API.
  • Excel Add-ins.
  • Model Analytic API.
  • GUI APP.
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Standard Initial Margin Model (SIMM) Introduction


1. SIMM Introduction

Initial Margin (IM) is the amount of collateral required to open a position with a broker or an exchange or a bank. The Standard Initial Margin Model (SIMM) is very likely to become the market standard. It is designed to provide a common methodology for calculating initial margin for uncleared OTC derivatives. Initial margin calculation is counterparty-portfolio-based. Given this standardized approach, counterparties can easily reconcile the results.

A Snapshot of Initial Margin Report
Initial Margin Calculation Results

2. SIMM Measures

Four product classes are defined:

  • Interest Rates and Foreign Exchange (RatesFX) product
  • Credit product
  • Equity product
  • Commodity product

Six applicable risk classes are specified within each product

  • Interest rates risk
  • Credit (Qualifying) risk: non-securitization and simple securitization
  • Credit (Non-Qualifying) risk: complex securitization
  • Equity risk
  • Commodity risk
  • FX risk

Three applicable risk measures are defined within each risk measure:

  • Delta – the first order derivative with respect to underlying price
  • Vega – the first order derivative with respect to implied volatility
  • Curvature

Risk buckets are defined for each risk measure

  • Interest rate bucket: based on currency (USD, EUR, CAD, .)
  • Credit bucket: based on credit quality (sovereign, financial, technology, .)
  • Equity bucket: based on sector (financial, industrial, .)
  • Commodity bucket: based on commodity type (crude, gas, .)
  • FX: each FX rate is a bucket

Risk factors are defined for each risk measure

  • Each interest rate curve has 12 risk factors (12 yields at different tenors).
  • Each credit curve has 5 risk factors (5 spreads at different tenors)
  • Equity risk factors are equity spot prices.
  • Commodity risk factors are commodity spot prices.
  • FX risk factors are spot exchange rates

A risk weight is defined for each risk factor and a correlation is specified for each risk factor pair.


3. Sensitivity Calculation

Delta Calculation

SIMM Delta initial margin calculation in FinPricing

Vega Calculation

SIMM Vega initial margin calculation in FinPricing

Curvature Calculation

SIMM curvature calculation in FinPricing

4. SIMM Calculation Procedure

Within a product class, calculate initial margin as follows

SIMM Delta Vega Margin within product in FinPricing
SIMM Curvature margin in FinPricing

. Final total initial margin

SIMM initial margin computation in FinPricing
5. Initial Margin Calculation Tool

FinPricing offers build-in tool for computing advanced risk measures, including initial margin.


6. Related Topics