Margin requirements based on a stochastic correlation model

We demonstrate that margin requirements of central counterparties show a significantly different behavior when calculated with portfoliowise treatment instead taking the weighted sum components without accounting for their correlation structures. This is shown via simulating trajectories joint stochastic volatility–stochastic model. Results indicate an unnecessarily large overmargin requirement set by regulators applied risk measure not treatment. Finally, structure assets during margining process would lead to overly prudent method, nor it cause greater procyclicality.