Migrating to Historical VaR

Value at Risk showing historical analysis and figures

In the context of margining methodologies, a discussion has been ongoing regarding the comparison between SPAN and VaR approaches, revolving around the accuracy and effectiveness of these methodologies in capturing risk. Advocates of SPAN argue that it offers a more comprehensive assessment by considering various factors specific to individual contracts and portfolio interactions and believe that this approach provides a more accurate reflection of risk exposure. Meanwhile, proponents of VaR argue that it provides a simplified and transparent measure of risk, making it easier to understand and implement. VaR is widely used in financial institutions and offers a standardized framework for risk assessment.

The CME and ICE have taken a leadership position on this and are transitioning over to VaR at various points over the next 12 months. KRM22’s post trade functionality has always reflected the array based margins of these exchanges, a feature key to our customers. In response to the decisions made by the CME and ICE, KRM22 is updating our Trading Risk suite to more closely represent their account’s risk exposure. This will allow for the risk management communities to view their parameterized stress risk, margin requirement, and VaR calculations in the same view providing a wholistic risk profile associated to their accounts.

VaR calculations will include customizable confidence levels, expected shortfall, histogram, and product sector breakdown of each portfolio.

We are already working with the exchanges and customers to develop and test the new functionality. Traditional array based margining will continue to be supported as long as the exchanges make it available.

Contact us to discover more about migrating to historical VaR.

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