Variation margin (VM) definition - Risk.net (2024)

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Variation margin (VM) definition - Risk.net? ›

Variation margin is a payment – typically made daily, in cash – to reflect changes in the market value of a trade, or portfolio of trades. In over-the-counter derivatives markets, variation margin is traditionally seen as a buffer against counterparty default; in listed derivatives, it is treated as settlement.

Variation margin is a collateral payment made by one party to a counterparty to cover any change in value of underlying assets used in futures contracts. Traders may make these payments on a day-to-day or intraday basis as directed by the clearing house.

Variation margin is a payment made to a clearinghouse when the clearing member's collateral loses value. Variation margin is used to maintain sufficient margin levels for trading. Variation margin depends on a variety of factors, including expected price movements, type of asset, and market conditions.

In derivatives markets, initial margin is one of two types of collateral required to protect a party to a contract in the event of default by the other counterparty. Variation margin – the other type of collateral – is paid daily from one side of the trade to the other, to reflect the current market value of the trade.

A forward margin is a deposit paid (in most cases by default) by the owner of a forward contract, which vests against the trade and is subtracted from the outstanding value of the trade upon completion of the contract.

What is variable margin? Also known as the variable contribution margin or contribution margin, the variable margin refers to the margin that results from subtracting variable production costs from revenue. While variable margin accounts for a product's variable costs, it doesn't account for any associated fixed costs.

To determine the variance in gross profit margin that these two types of adjustments create, calculate the margin for each price/cost scenario, and subtract the results.

At standard Temperature and Pressure (STP) the molar volume (V_m) is the volume occupied by one mole of a chemical element or a chemical compound. It can be calculated by dividing the molar mass (M) by mass density (ρ). Molar gas volume is one mole of any gas at a specific temperature and pressure has a fixed volume.

Virtual machines: virtual computers within computers. A virtual machine, commonly shortened to just VM, is no different than any other physical computer like a laptop, smart phone, or server.

VM-Value means, in the case of VM-Cash Collateral, the notional amount and, in the case of VM-Securities Collateral, the VM-Market Value at the VM-Determination Time, in each case multiplied with the VM-Charge Rates specified in Clause 14 sub-Clause 1.

Is variation margin always cash? ›

It can consist of cash, securities, or other collateral. Variation margin is the amount required to be paid or received periodically as dictated by the clearing member and/or clearing house.

In derivatives markets, variation margin is one of two types of collateral required to protect parties to a contract in the event of default by the other counterparty. It provides for changes in the market value of the trade or a portfolio of trades.

In addition, interest associated with variation margin is paid to the party paying variation margin. separate from the fair value of the derivative asset or liability. or extinguished by the transfer of collateral.

It must be sustained by liquid funds so that it can be used as collateral in case of future losses. It ensures the smooth functioning of that clearinghouse. Variation margin is dependent on multiple factors, such as the type of asset, prevailing market conditions, and expected price movements.

VARIATION MARGIN REQUIREMENTS

Traditionally the threshold amount with respect to a party to thederivatives transaction is the amount of credit risk that the counterparty is willing to take. Minimum Transfer Amount - the minimum transfer amount (known as the MTA) is subject to a $500,000 maximum.

The equity component represents the net liquidation value (NLV) for equity-style margined options. Variation margin refers to the payment made between the counterparties due to the portfolio value change resulting from the market price movement.

Variation margin (i.e. daily settlement of profits and losses) as well as premiums on traditional options and futures on options must be paid in cash. Modern risk management methods need to cope with the advances in trading speeds and changing market characteristics.

Posting of variation margin is aimed at ensuring that the exposure to a counterparty will be limited to the exposures due to market movement between margin calls.

In words: The marginal variance is the sum of the expected value of the conditional variance and the variance of the conditional means. Consequences: 1) This says that two things contribute to the marginal (overall) variance: the expected value of the conditional variance, and the variance of the conditional means.