The Margin-at-Risk (MaR) is a quantity used to manage short-term liquidity risks due to variation of
margin requirements, i.e. it is a
financial risk
Financial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial ...
occurring when
trading commodities. It is similar to the
Value-at-Risk (VaR), but instead of simulating
EBIT EBIT, Ebit or ebit may refer to:
*EBIT, or Earnings before interest and taxes, in finance
*EBIT, or Electron beam ion trap, in physics
*An ebit (quantum state), a two-party quantum state with quantum entanglement
Quantum entanglement is the ph ...
it returns a
quantile
In statistics and probability, quantiles are cut points dividing the range of a probability distribution into continuous intervals with equal probabilities, or dividing the observations in a sample in the same way. There is one fewer quantile tha ...
of the (expected)
cash flow
A cash flow is a real or virtual movement of money:
*a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...
distribution.
To do so, MaR requires (1) a currency, (2) a
confidence level
In frequentist statistics, a confidence interval (CI) is a range of estimates for an unknown parameter. A confidence interval is computed at a designated ''confidence level''; the 95% confidence level is most common, but other levels, such as 9 ...
(e.g. 90%) and (3) a holding period (e.g. 3 days).
The idea is that a given portfolio loss will be compensated by a
margin call
''Margin Call'' is a 2011 American drama film written and directed by J. C. Chandor in his feature directorial debut. The principal story takes place over a 24-hour period at a large Wall Street investment bank during the initial stages of the ...
by the same amount.
The MaR quantifies the "worst case" margin-call and is only driven by market prices.
See also
*
Liquidity at risk
The Liquidity-at-Risk (short: LaR) is a measure of the liquidity risk exposure of a financial portfolio.
It may be defined as the net liquidity drain which can occur in the portfolio in a given risk scenario.
If the Liquidity at Risk is greater ...
*
Value at risk
Value at risk (VaR) is a measure of the risk of loss for investments. It estimates how much a set of investments might lose (with a given probability), given normal market conditions, in a set time period such as a day. VaR is typically used by ...
*
Profit at risk
Profit-at-Risk (PaR) is a risk management quantity most often used for electricity portfolios that contain some mixture of generation assets, trading contracts and end-user consumption. It is used to provide a measure of the downside risk to pro ...
*
*
Cash flow at risk
References
{{Financial risk
Mathematical finance
Financial_risk_modeling
Monte Carlo methods in finance
Credit risk