Study On SPAN Margin Systems Based On Stress Condition Value-at-risk

The system of Standard Portfolio Analysis of Risk (SPAN), which was designed by the Chicago Mercantile Exchange(CME) in 1988, has now become a widely applied margin calculation and management system in global financial markets. It makes a comprehensive analysis of the portfolio's risk, and considers the risk deduction of the position hedging and correlation among commodities, thus calculating the reasonable risk margin. The SPAN system provides a good development direction for the monitoring of the market risk of derivatives in China. However the system of SPAN is developed by the CME and closed operation, it didn't provide specific calculation principles and methods. Therefore, in order to learn and apply SPAN system, it is necessary to understand the calculation principles and methods and to estimate the important parameters.Regarding the problems above, firstly, this paper studies the margin algorithm of SPAN system and gives a computational logic and method of each part of risk value in SPAN, which has an important reference significance for understanding, introducing or applying SPAN system.Secondly, as one of the most important input parameters, price scan range esti-mation is a problem which needs to be solved urgently in the application of SPAN system. This paper introduces the stress CVaR model based on historical simula-tion method to estimate the price scan range parameter, which is compared with the parameter given by CME through the empirical study. It is shown that price scan range estimation model based on stress CVaR fits the market more than that given by CME. Further more, the new model is stable, effective, simple, and it has a great theoretical and practical significance on the introduction and application of financial derivatives market in China.