Shiwali Shuklashiwali shukla asked 2 years ago

Sir i was attempting questions of stock exchange chapter from Practice Manual in which value at risk based margining approach was given in concept of Rolling Settlement but i could not understood.Sir please elaborate What is Value at risk based margining approach

1 Answers
RaviRavi Staff answered 2 years ago

Value at risk Margin is popular margin computation methodology, used across the world. Unfortunately it is not in detail in our course, i will explain principles involved.
per day movement of share is computed (volatility) and then its average is taken (average volatility, say 2%), this average daily volatility indicates, loss that can occur in a day, then volatility for 3 days is computed  average x 3 days i.e 2 x 3 = 6% now 6% is applied on outstanding position of share say 5,00,000 so margin will be 5,00,000 x 6% = 30,000 this amount will be taken as deposit from member of stock exchange.
 above is simplified example in real life, volatility of index, liquidity of stock  is also taken into consideration. above example is sufficient keeping in mind present course situation 

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