SwapClear Margin Methodology

Initial margin is collected from each member to cover potential losses in the event of a default.  SwapClear initial margin is calculated using LCH.Clearnet’s proprietary PAIRS (Portfolio Approach to Interest Rate Scenarios) margin methodology.  PAIRS is an expected shortfall model based on filtered historical simulation incorporating volatility scaling. The model uses ten years of historical market data to simulate changes in portfolio value from which an estimate of the potential loss distribution is calculated.

In addition to PAIRS initial margin, SwapClear applies margin add-ons covering Credit Risk and Liquidity Risk where a particular member’s inherent risk exposure is not captured within the PAIRS model.

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