In an account with portfolio margin enabled, the portfolio of positions in the account are looked at together, and the portfolio is stress tested against various scenarios. The worst performing of the tested scenarios is used to calculate the total margin requirements. The simple IM and MM formulas used in standard margin accounts do not apply to portfolio margin accounts.
Deribit supports 2 portfolio margin models:
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Segregated Portfolio Margin (S:PM)
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Cross Portfolio Margin (X:PM)
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Each of the settlement currencies is treated separately.
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Within each settlement currency though, all of the positions that use that settlement currency are looked at together.
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The margin requirements are calculated based on the worst performing of the stress test scenarios for that currency.
The portfolio is tested against various scenarios, with the worst performing scenario being used to calculate the margin requirements. There are several components that go into the stress test scenarios. The details, up to date values, and the results of each of the scenarios, can be found on the margin page. A summary of the main components of the calculation are listed below:
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Maximum underlying price move e.g. +/-16%. This is broken down into 9 evenly spaced buckets from the bottom of the range to the top, including a bucket for zero price movement.
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Volatility Stress Scenarios (Volatility Range Up, Same, and Down) are calculated for each bucket of underlying price move.
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Extended Table - this is primarily meant to account for large short options positions that are far out of the money.
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Calculations of price moves of, e.g. -66%, -33%, +50%, +100%, +200%, +300%, +400%, +500%
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Only on Volatility Range Up
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Only a fraction of simulated P&L
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Application of a dampener
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Delta Shock.
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Roll Shock.
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Position Initial Margin = Worst case loss scenario of risk matrix (including extended table) per Base Currency + Delta Shock + Roll Shock
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Maintenance Margin = Position Initial Margin * Maintenance Margin Factor
(the default Maintenance Margin Factor is 0.80)
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Position Initial Margin is added with the Initial Margin for open orders and Initial Margin for MMP Settings to give the final Initial Margin.
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Delta shock is calculated per currency pair for large delta positions.
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The margin system looks at the net delta on long option positions separately to futures and short option positions.
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The net deltas on long options are not taken into account unless they help offset the net deltas from futures + short options.
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The deltas for the shock (DeltaForShock) are the net delta of futures + short options that are not offset by the net delta from long options.
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These are then converted to dollar deltas by multiplying by the index, and the amount in excess of the Delta Total Liquidity Shock Threshold are multiplied by the increment used in standard margin for the perpetual, and if no perpetual, then for the dated future.
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A cap is applied to this charge: the Max Delta Shock.
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Roll Shock is calculated per base currency in each settlement currency.
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First a Minimum Roll Shock is calculated as shown in the formula, using the Net Delta per Expiry.
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Then an Annualised Roll Shock is calculated as shown in formula.
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The Roll Shock per base currency in each settlement currency is then summed across all the base currencies to give a Final Roll Shock in each settlement currency.
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Note that the Perpetual deltas are considered as the Perpetual being its own expiry with time to expiry equal to 0
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Note that in the API, the Min Expiry Delta Shock is shown as min_annualised_move
Cross Portfolio Margin (X:PM) extends the capabilities of Segregated Portfolio Margin (S:PM) by allowing the use of multiple collateral types across the available instruments and settlement currencies. In X:PM, equity is treated as a position, and all positions across different assets are aggregated in a single risk matrix. This allows, for example, for BTC equity to be used to open positions in USDC or ETH settled instruments, and vice versa. The model calculates margin by simulating the impact of price movements across multiple currencies, resulting in a USD-based Initial and Maintenance Margin.
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With Cross Portfolio Margin (X:PM) all the positions in all settlement currencies are looked at together in a single risk matrix.
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This allows currencies other than the settlement currency of an instrument to be used as margin to support orders and positions in the instrument.
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Roll Shocks are calculated per base currency (instead of first being grouped by settlement currency and then by base currency, as is done in Segregated Portfolio Margin).
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Delta Shocks are still calculated by currency pair, which means a very large spread between BTC-PERPETUAL and BTC_USDC-PERPETUAL, for example, would get shocked.
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The output is calculated in USD, giving a USD row in the Account Summary, but this USD output is also converted into each Settlement Currency for the sake of backward compatibility. It is important to note that the sum of your BTC, ETH, USDC, and USDT Margin Balance and margins will not be equivalent to your USD Margin Balance and margin.
The model treats equity as a position and looks at all positions in equity, futures, options in all currencies in one matrix and nets positions based on the same base currency. PM Initial Margin is determined by calculating the worst performing scenario for the portfolio, with the following components:
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For the Main Table, the Price Range is defined per Currency Pair and defines the Underlying Price Move buckets. The buckets are -4, -3, -2, -1, 0, +1, +2, +3, +4, and the underlying price move for an instrument is the bucket number * Price Range / 4. For example, if the Price Range of btc_usd is 16%, then bucket -3 will look at an underlying price move of -3 * 16%/4 = -12%.
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Volatility Stress Scenarios (Volatility Range Up, Same, and Down) are calculated for each bucket of underlying price move.
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Extended Table - this is primarily meant to account for large short options positions that are far out of the money.
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Calculations of price moves of, e.g. -66%, -33%, +50%, +100%, +200%, +300%, +400%, +500%
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Only on Volatility Range Up
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Only a fraction of simulated P&L
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Application of a dampener
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Delta Shock.
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Roll Shock.
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For the PNL calculations in the table, USDC and USDT settled instruments are first calculated as in Segregated PM but then multiplied by the USDC_USD and USDT_USD indices respectively, to get the USD PNL. For BTC and ETH settled instruments, they are first calculated as in Segregated PM but then multiplied by the BTC and ETH indices respectively to get the USD PNL.
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Position Initial Margin = Worst case loss scenario of risk matrix (including extended table) per Base Currency + Delta Shock + Roll Shock
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Maintenance Margin = Position Initial Margin * Maintenance Margin Factor
(the default Maintenance Margin Factor is 0.80)
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Position Initial Margin is added with the Initial Margin for open orders and Initial Margin for MMP Settings to give the final Initial Margin.
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For certain currencies, haircuts are applied. For more info, see Cross collateral specifications.
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Delta shock is calculated per currency pair for large delta positions, and gives a result in USD (unlike S:PM which gives a result in the settlement currency).
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The net delta on long option positions is looked at separately to futures + short option positions.
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The net deltas on long options are not taken into account unless they help offset the net deltas from futures + short options.
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The deltas for the shock (DeltasForShock) are the net delta of futures + short options that are not offset by the net delta from long options.
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These are then converted to dollar deltas by multiplying by the index and the amount in excess of the Delta Total Liquidity Shock Threshold are multiplied by the increment used in standard margin for the perpetual, and if no perpetual, for the dated future.
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A cap is applied to this charge: the Max Delta Shock.
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Roll Shock is calculated per base currency and gives a result in USD (unlike S:PM which gives a result in the settlement currency).
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First a Minimum Roll Shock is calculated as shown in the formula, using the Net Notional USD Delta per Expiry.
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Net Notional USD Delta = Net Delta * Index
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Then an Annualised Roll Shock is calculated as shown in formula.
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The Roll Shock per base currency in each settlement currency is then summed across all the base currencies to give a Final Roll Shock in each settlement currency.
Notice
Note that the Perpetual deltas are considered as the Perpetual being its own expiry with time to expiry equal 0
Notice
Note that in API, the Min Expiry Delta Shock is shown as min_annualised_move
Parameters for the model can be found on the PM page (https://www.deribit.com/account/BTC/portfolio-margin). This shows parameters based on the instruments you have in your position. To see all parameters, you can use the API call public/pme/get_params.
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Each calculated value in the table represents a simulated PNL for that instrument for a particular underlying move and volatility shock.
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For Cross PM only: Equity can be used to offset positions in X:PM. For example, BNB equity can offset short BNB calls.
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Haircuts are not applicable under S:PM.
For the final risk matrix calculations, only a fraction of the SimulatedPNL is used from the Extended Table and a dampener is also used in this section. The fraction for each bucket in the Extended Table are calculated as below.
For the Main Table and Extended Table, we sum the rows on each base currency to gat a matrix output grouped by base currency. In this step, BTCDVOL is grouped with BTC. For the Extended Table, we then apply a dampener to reduce it’s impact. It means that only very large option positions will cause an impact in the Extended Table.
For all instruments:
On the Portfolio Margin page, above the Risk Matrix, you will see a summary of the margin.
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Offset currencies (XRP, BNB) are not full cross collateral currencies in the same way as BTC, ETH, USDC, USDT, PAXG etc. The offset currencies are used to offset upside risk only in the respective currency in the Risk Matrix. This is represented by the presence of an offset currency balance in the risk matrix, with positive values in the upside ranges.
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A client entering a covered call setup on Cross PM needs to hold USDC, USDT, BTC or any of the other cross collateral currencies to be able to enter the covered call positions. They also need to maintain a certain balance of these currencies as collateral (as these are part of the Margin Balance, while an offset currency is not).
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The Margin Balance (BTC, ETH, USDC, etc - not XRP, BNB) is compared to the Initial and Maintenance Margins (IM and MM ratios) to determine if a client is breaching their margin requirements. An MM ratio above 100% would trigger a liquidation.
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In addition to up and down scenarios, we also perform vol up and vol down shock scenarios. This will determine the margin requirements on the position, which need to be posted in USDC, USDT, etc (not e.g. XRP).
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The client should especially consider the upside risk, where his USDC equity would become lower as underlying is increasing as a result of his short options. As the offset currency (XRP or BNB) is not part of the Margin Balance, this could result in an insufficient Margin Balance to cover his Maintenance Margin Requirements, thus resulting in a liquidation. To avoid this scenario, the client should also ensure there is a sufficient amount of cross collateral currencies in the account (BTC, ETH, USDC, USDT, etc.).