Variation margin

Definition

Variation margin in plain English

Frequent variation margin reduces current exposure but does not eliminate gap, liquidity, legal, or wrong-way risk. Large calls can themselves transmit liquidity stress.

Learn these first

• Potential Future Exposure (PFE)
• xVA

Practice Variation margin

A simple risk-management situation: daily variation margin… Which concept is illustrated by this case: “daily variation…

Related FRM Part 2 terms

• Country risk premium (CRP)
• Cover 2
• Credit conversion factor (CCF)
• Credit and Debit Valuation Adjustments (CVA/DVA)
• Default waterfall
• Distance to default (DD)
• Economic capital
• Excess spread
• Expected Loss (EL)
• Expected Positive Exposure (EPE)