Clearing, Settlement and Custody

SPAN simulates how the value of a ‘portfolio’ would react to the

changing market conditions defined in the initial margin parameters.

This is done by adopting a series of market scenarios and evaluating

the ‘portfolio’ under these conditions.

For example, the futures scanning range for the LIFFE coffee

contract is $50/tonne and the volatility shift parameter is 10%. The

closing price of coffee is $1275/tonne and the implied volatility is

25%.

In this case, London SPAN uses sixteen scenarios consisting of

implied volatilities increasing or decreasing by 2.5% (i.e. 10% of

25%), and futures prices increasing or decreasing by proportions of

the futures scanning ...