Standard Portfolio Analysis of Risk (SPAN)
SPAN margin is measured by standardized portfolio analysis of risk (SPAN), a leading system that has been endorsed by most options futures and exchanges around the world. SPAN is based on a sophisticated set of algorithms. Developed by the Chicago Mercantile Exchange in 1988, performance bond margining system for calculating margin requirements has become the futures industry standard.
The SPAN system, through its algorithms, sets the margin of each position in a portfolio of derivatives and physical instruments to its calculated worst possible one-day move. The main inputs to the models are strike prices, risk-free interest rates, changes in prices of the underlying stocks. changes in volatility, and decreases in time to expiration The resulting effect of these “risk arrays” is to acquire respective gains or losses of futures and options positions within that underlying.
EDGE AND RATIONALE OF SPAN
SPAN perceives the special distinctive of options, there by seeking accurate assessment on the impact of option values from not only futures price movements also changes in market volatility and the passage of time. The conclusion is that the minimum margin on the portfolio will more precisely reflect the inherent risk involved with those positions as a total.
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