medium · FRM Part 1 Financial Markets and Products

Why does the clearinghouse nonetheless require substantial initial margin, and which Greek best explains the gap between the manager's delta view and the true tail risk?

1. Margin is set from a scenario grid of large joint price and volatility shocks, where the short put's negative gamma and short vega make losses accelerate non-linearly far beyond the linear delta estimate.
2. Theta works against the short put position, so the clearinghouse still charges margin to cover the daily time decay premium that the manager must eventually pay the option buyer as expiry nears.
3. The put's positive delta on a sharp price drop is offset by a small negative rho, and the clearinghouse conservatively margins the rho exposure that the manager's simple linear delta view completely ignores.
4. Vanna alone is captured here: the cross-sensitivity of delta to implied volatility is the only second-order term that SPAN's scenario grid prices, while gamma risk is deliberately excluded from clearing margin.

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