SPAN is the most common ETD Initial Margin algorithm. it is developed by CME who license it to exchanges around the world. The main component of SPAN is the Scanning Loss – a “worst case loss” from 16 scenarios, based on shifts in the underlying price (Scanning Range) and option volatility.
The SPAN algorithm includes Intracommodity Spreads, which add charges for expiry spread position which would attract little or no margin in the Scanning Loss calculation. There are also Intercommodity Offsets, which reduce the margin based on spreads between correlated products, for example Brent v WTI or between different Bond contracts.
There are other ETD margin algorithms, for example Prisma, TIMS and STANS. Some of these are based on FHS VaR rather than fixed scenarios, and many CCPs are looking to move to this. Find out more here: Impact of Moving From SPAN to VaR.
Here’s an update on the move from SPAN to VaR based algorithms
We invite you to learn more and read more of our content. Explore our collection of Ebooks, such as our SPAN To VaR Ebook . Explore a wide selection of blogs on our insights page, such as our blog on The Pros and Cons Of SPAN Margin and VaR Margin. Additionally, learn more about OpenGamma by watching our demo and taking a look at our product and solutions pages.
