SPAN to VaR refers to the conversion or mapping of risk calculations from the Standard Portfolio Analysis of Risk (SPAN) methodology to the Value at Risk (VaR) methodology, particularly relevant for institutional trading desks managing crypto derivatives. SPAN is a portfolio margining system, while VaR estimates potential loss over a specific time horizon at a given confidence level.
Mechanism
This process involves transforming the risk parameters generated by the SPAN system, which calculates margin requirements based on an array of predefined scenarios, into a VaR framework. This typically necessitates calibrating VaR models using SPAN’s scenario-based risk factors, enabling a unified risk assessment across diverse financial instruments and accommodating varied regulatory reporting requirements.
Methodology
This methodological integration facilitates comprehensive risk aggregation and reporting by translating granular, exchange-specific margin computations into a widely understood and regulatory-accepted risk metric. It provides a holistic view of portfolio risk, which is essential for informed capital allocation decisions, rigorous stress testing, and adherence to compliance standards within institutional crypto derivatives trading operations.
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