Initial Margin Methods for Cleared and Uncleared OTC Derivatives

Summary

The discussion distinguishes margin approaches for uncleared over-the-counter derivatives from those used by central counterparties. It identifies ISDA’s Standard Initial Margin Model (SIMM) as a common methodology for calculating initial margin on uncleared trades. Central counterparties such as CME and LCH each use their own margin methodology, so the required margin can differ across clearing venues.

Those differences can affect interest-rate swap quotes and create pricing bases between CCPs. Curve data may be adjusted to reflect initial-margin imbalances, and some data services provide direct links to CCP calculations. The answer does not explain SIMM inputs or reproduce the CCP formulas; it notes that venue-specific calculations are proprietary and can be difficult to obtain. The takeaway is that margin is model- and venue-dependent, so a trader comparing cleared swap costs should account for the clearing house used.

Key ideas

• SIMM is a common approach for calculating initial margin on uncleared OTC derivatives.\nEach central counterparty applies its own methodology to determine margin requirements.\nDifferences in CCP initial margin can contribute to basis differences in interest-rate swap quotes.\nSpecific CCP calculations may be proprietary, limiting a trader’s ability to reproduce them.

Tags

# Margin Requirement model for CCP and non-central cleared OTC derivatives


# Margin Requirement model for CCP and non-central cleared OTC derivatives












What the models for computing margin requirement for central counterparty (CCP) and non-central cleared OTC derivatives.

## Answer by AKdemy (score 1)

https://quant.stackexchange.com/a/63834

Agree with @Kermittfrog, your request is not very clear. A common methodology for calculating initial margin for uncleared OTC derivatives is SIMM.

CCP's all have their own method. For this reason, interest rate swap quotes are frequently received for clearing on CME or LCH for example. Also, many data providers have CME/LCH basis due to IM imbalances at these CCPs so that stripped curves can be transformed accordingly.

For example, LCH uses this, which is as the website states proprietary (meaning exact calculations are difficult to obtain). E.g. Bloomberg offers a direct API link to LCH (and others) for IM calculation. Same applies for CME.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.