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ICE Risk Model 2.0 Methodology

ICE Risk Model (IRM) 2.0 utilizes a Filtered Historical Simulation (FHS) Value-at-Risk (VaR) approach that models the behavior of a portfolio as a whole rather than measuring risk on an instrument by instrument basis. IRM 2.0 leverages a portfolio-level perspective by capturing all relationships and diversifying effects within a portfolio. Unlike IRM 1.0, there is no need to configure the thousands of separate array parameters.

IRM 2.0 Initial Margin Flow


Risk Factor

Risk Factors are representations of the factors driving valuation changes. They may be a price, return or rate.

Risk Factor Construction

Risk Factors are constructed from prices of observable instruments.

Scaling & Scenarios

The return Risk Factors are scaled in order to produce scenarios that reflect current market volatility and incorporate various risk and regulatory requirements.

Instrument P&L Scenarios

Instrument P&Ls simulations are generated by using top day risk factors derived prices, and scenario prices derived using scaled risk factor scenarios. Pricing functions are used in the transformation of the Top Day Risk Factors (Base Price) as well as Scaled Scenarios (Simulated Price) back to observable instrument prices.

Initial Margin

The instrument P&L simulations are aggregated at the portfolio level and then combined with other components designed to comply with regulatory and risk requirements producing a final initial margin.

IRM 2.0 Initial Margin Flow

IRM 2.0 Model Components

The overall IRM 2.0 portfolio margin requirement comprises two components, the portfolio’s Initial Margin (IM) and separately, the portfolio’s Liquidity Risk Charge (LRC).

In turn, the IM and LRC components encompass sub components which are designed to capture specific risk elements. Collectively, the risk elements support the deep granularity of the overall IRM 2.0 model.

irm 2.0 requirement chart

Operational Consideration

Prior to launch, ICUS will operate both IRM 2.0 and IRM 1.0 in parallel for a limited period for each product group implementation stage to ensure a smooth transition for members and vendors.

  • Once the production parallel run period has concluded, ICUS will cease to publish IRM 1.0 Array Files for the migrating ETD product group. More specifically, the current ICUS IRM 1.0 Array file will no longer include the products migrating to IRM 2.0
  • ICUS will use IRM 2.0 to calculate initial margin & liquidity risk charge for the migrated ETD products while all other ICUS ETD futures and options will remain on IRM 1.0. This will result in scenarios where individual portfolios consist of holdings subject to both IRM 1.0 & IRM 2.0 margin estimations simultaneously
  • Clearing Members can use the new IRM 2.0 data files to reconcile their margin calculation against the Clearing House margin calculation
  • ICE will be launching ICE Portfolio Analytics (IPA), a web-based initial margin calculator and reporting application supports both IRM 2.0 and IRM 1.0
  • Both IRM 2.0 IM and LRC calculations are externalized for Clearing Members and vendors wishing to replicate IRM 2.0 in their proprietary back office systems. For access to the external specifications please contact your ICE account management representative.

Resources


IRM 2.0 Overview

ICE Portfolio Analytics for Clearing

IRM 2.0 FAQ

IRM 2.0 Contacts

ICE Clear U.S. Operations Helpdesk:

+1 312-836-6777 / [email protected]

ICE Clear U.S. Program Support Team:

[email protected]

ICE Portfolio Analytics for Clearing:

+1 770-738-2101(option #6) / [email protected]