Understand margin (SPAN + exposure)

5.1.3 · Stock-Market › Futures

Derivation: Do margin types kyun hote hain?

Chalo pehle principles se shuru karte hain.

Step 1: Exchange ko kaunsa risk face karna padta hai?

Jab tum futures position lete ho, exchange (clearing ke through) counterparty ban jaata hai. Agar tum apni obligations meet nahi kar sako, toh exchange ko tumhare losses cover karne padte hain. Exchange ko quantify karna hota hai: "Is position ko close karne se pehle mujhe maximum kitna loss ho sakta hai?"

Step 2: SPAN banana (scenario-based risk)

SPAN ek standardized model use karta hai jo poochhta hai: "Exchange ke define kiye gaye market-movement scenarios ke ek fixed set mein is position ka kya hoga?"

Yeh algorithm:

1. Price scan range: Fixed number of price-scan intervals mein potential P&L calculate karo (commonly 16 scenarios). Inke steps ki magnitude exchange-defined price bands hoti hain (e.g., ±10–15% underlying ki), nahi ki dynamically computed standard-deviation moves.
2. Volatility scan (sirf options ke liye): Option positions ke liye, SPAN implied volatility ko bhi ek fixed exchange-defined amount se up/down shift karta hai. Note: Ek plain futures position ke liye koi volatility-scan component nahi hota – ek future ka payoff price mein linear hota hai aur IV par depend nahi karta.
3. Time decay (sirf options ke liye): Option value ke ek-din ke theta decay ko account karo.
4. Worst loss scan karo: Sabhi scenarios mein se, maximum potential loss pick karo.

$\text{SPAN Margin}={\max }_{i\in \text{scenarios}}\left|{\text{Loss}}_i\right|$

Yeh step kyun? Ek simple percentage-of-notional options wale portfolios ke liye fail ho jaata (far OTM options ka notional high hone ke bawajood risk kam hota hai, aur hedged positions offset karte hain). SPAN standardized market stress simulate karke actual portfolio risk capture karta hai. Ek akele futures position ke liye, worst-loss scenario reduce hokar largest exchange-defined adverse price band ban jaata hai.

Step 3: SPAN ke upar exposure margin kyun?

SPAN assume karta hai ki exchange tumhari position ek trading day ke andar apne standardized price bands use karke close kar sakta hai. Lekin kya ho agar:

• Market scan bands se zyaada overnight gap kare (earnings, geopolitical events)
• Liquidity sukh jaaye aur position quickly square off na ho sake
• Black swan events exchanges ke fixed scenario ranges se zyaada moves karaayein

Exposure margin ek prudential buffer hai un tail risks ke liye jo SPAN capture nahi karta. India mein, SEBI mandate karta hai:

• Exposure margin = Notional value ka Fixed % (typically index futures ke liye 3-5%, stock futures ke liye zyaada)

$\text{Exposure Margin}=\text{Notional Value}\times \text{Exposure \%}$

Combined formula:

$\boxed{\text{Total Initial Margin}=\text{SPAN Margin}+\text{Exposure Margin}}$

Connections

• 5.1.01-What-is-a-futures-contract – Underlying contract ko samajhna jise margin protect karta hai
• 5.1.02-Mark-to-market-settlement – Daily P&L calculation margin availability ko affect karti hai
• 5.2.01-Portfolio-margining-benefits – SPAN hedged positions ke liye offset benefits kaise enable karta hai
• 6.1.04-Margin-calls-and-forced-liquidation – Kya hota hai jab margin requirements se neeche aa jaaye
• 3.2.03-Implied-volatility – IV option SPAN margins ke liye volatility scan drive karta hai (plain futures ke liye nahi)
• 7.1.02-Position-sizing-with-leverage – Appropriate position size determine karne ke liye margin requirements ka use

#flashcards/stock-market

Indian futures markets mein initial margin ke do components kya hain? :: SPAN margin (risk-based scenario analysis) aur Exposure margin (tail risks ke liye fixed % buffer)

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