What is Value at Risk (VaR), Extreme Loss Margin (ELM), and Adhoc margins?

What is Value at Risk (VaR), Extreme Loss Margin (ELM), and Adhoc margins?

Value at Risk (VAR) is a statistical measure used in risk management to estimate the potential loss in value of a portfolio of assets due to market movements over a certain time period and with a certain level of confidence. VAR is commonly used in financial risk management, which helps estimate a portfolio's potential downside risk.

Extreme Loss Margin (ELM) is an additional margin charged by exchanges in addition to the normal margin requirements. ELM is designed to cover the risk of losses beyond the level predicted by VAR models. ELM is usually a fixed percentage of the value of the contract and is applied to both buy and sell positions.

Adhoc margins refer to additional margins that can be imposed by exchanges on market participants on an ad hoc basis. These margins are applied when the exchange perceives that there is a higher risk of default, volatility, or other market conditions that could lead to higher losses. Adhoc margins are typically imposed in addition to the normal margin requirements and are designed to protect the market and its participants from unexpected risks.



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