Margining of contracts with negative or near zero prices

Background

All Nodal contracts are currently VaR-margined using a 257-day price history.  There may be instances when the prices of these contracts become negative or close to zero.  If this were to happen, the existing VaR methodology would produce an incorrect price return from a negative price as well as potentially generate excessive price returns from near zero prices.

New Solution

Given the above, LCH.Clearnet is implementing a new VaR margining methodology to deal with negative and near zero prices. Two additional parameters have been added: Minimum Price Denominator (MPD) and Price Threshold for VaR (MPV).  These two parameters are implemented in the following way for the calculation of returns and VaR contribution:

For more detailed information on the methodology, please contact [email protected]