• What are the instruments that ActiveMargin™ can handle? |
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ActiveMargin™ is capable of handling the following categories of instruments
- Equities
- Bonds
- Futures
- Stock Futures
- Index Futures
- Commodity Futures
- Forward Rate Agreements
- Outright Forex Forwards
- Options
- Stock Options
- Index Options
- Commodity Options
- Forex Options
- Caps, Floors, Collars
- Swaptions
- Others
- Interest Rate Swaps
- Currency Swaps
- Overnight Index Swaps
- Exotic Options (Equity and Currency)
- Barrier Options
- Down-and-In
- Down-and-Out
- Up-and-In
- Up-and-Out
- Digital Options
- Cash Or Nothing
- Asset Or Nothing
- Lookback Options
- CFDs
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| • Can ActiveMargin™ handle a hierarchy of levels in an organisation? |
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ActiveMargin™ can handle unlimited number of hierarchy levels. Risk settings can be defined at each level, and therefore reporting is possible at each level independently. Risk aggregation at higher levels can be on covaried basis (giving hedge benefits to positions of different entities at a lower level) or on non-covaried basis. When deal requests are validated by ActiveMargin™, ActiveMargin™ will verify for limit compliance at every level in the hierarchy before passing the deal request. Click here to view chart
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| • What do you mean by portfolio margining? |
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When a portfolio comprises many individual securities, it is common for the risk of the entire portfolio to be lower than the sum of risks of the individual securities. This is due to diversification benefits arising from uncorrelated movements in prices of the individual securities. It therefore makes sense to margin (or allocate capital, as the case may be) positions based on the risk posed by the entire portfolio. This margin is usually a lot lesser than margining individual securities.
The diversification benefit in a portfolio depends on many factors, the most important being the correlations amongst asset returns. ActiveMargin™ uses such a methodology to compute the portfolio margin.
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| • What is aggregation on co-varied basis? |
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When the positions of 2 trading desks are aggregated at a division level, the risk at the division level is not the same as the sum of the risks at the 2 trading desks. This is primarily because there might be positions in the first trading desk that act as hedges to those in the second trading desk. Therefore, while arriving at the risk at the division level, it makes sense to compute this risk on co-varied basis, that is, by allowing hedge benefits to positions in the two desks.
Co-Varied Risk Measure – The risk at a higher level is usually lower than the sum of the risks at the lower levels.
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| • If the dealer has to validate his deal request every time before he concludes one, he might be required to spend a large portion of his time entering the pre-deal ticket, and waiting for a response from ActiveMargin™. This is not acceptable. |
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| ActiveMargin™ is lightning fast. Even in the minimal configuration, it can handle a large number of requests and produce a decision in a few milli-seconds. That is not much waiting! As for entering the pre-deal ticket, it is a small price to pay for the top management to KNOW for sure that risks are under control and within set parameters, at ALL times, not just end of day. |
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| • Can ActiveMargin™ handle multiple currencies? |
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ActiveMargin™ is a full fledged multi-currency software. It can handle portfolios in multiple currencies, each such portfolio comprising instruments in many currencies. The risk reporting can also be done in any currency. The forex risk associated with such risk reporting is quantified and incorporated in the report. ActiveMargin™ provides an online interface for currency rate changes, and all such changes impact risk validation and reporting instantaneously.
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| • How does ActiveMargin™ handle changing market rates of instruments? |
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The Broadcast Manager process of ActiveMargin™ interfaces with price vendors through an online interface. ActiveMargin™ reacts instantaneously to price changes by recomputing the mark-to-market losses of a portfolio. ActiveMargin™ uses special optimization routines which help it handle high
intensity price feeds . However, when the price feed becomes unmanageably dense, the Broadcast Manager is capable of pacing the feed to manageable levels.
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| • How does ActiveMargin™ handle changing forex rates? |
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| ActiveMargin™ accepts feeds from vendors in respect of forex rates. All forex rate changes instantly affect the MTM of related instruments, and will affect further risk validation immediately. |
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