Series VIIIHardTrading, Clearing and Settlement

SPAN margin in the equity derivatives segment is best described as:

AA portfolio-based initial margin computed by simulating changes in price and volatilitycheck_circle
BA margin charged only on option buyers
CThe premium paid for buying an option
DA fixed percentage margin unrelated to risk

Correct answer

A. A portfolio-based initial margin computed by simulating changes in price and volatility

lightbulbDetailed Solution

SPAN (Standard Portfolio Analysis of Risk) computes the initial margin by scanning a portfolio's worst-case loss across a set of price and volatility scenarios. It is risk-based and portfolio-level, so offsetting positions attract lower margin. Exposure margin is charged in addition to SPAN.

Reference: NISM Series VIII Equity Derivatives, Chapter 4.

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