A Computational Study of Margining Portfolios of Options by Two Approaches

Abstract

This paper presents preliminary results of a computational experiment with the strategy-based approach and the risk-based approach to portfolio margining with the purpose to clarify which one yields lower margin requirements under different scenarios. There exists a widespread opinion that the risk-based approach is always a winner in this competition, and therefore the strategy-based approach must be disqualified as outdated. However, the results of our experiment with portfolios of stock options show that, in many practical situations, the strategy-based approach yields substantially lower margin requirements in comparison with the risk-based approach.