![]() ![]() The resulting values across the portfolio are then converted to a common currency and summed to yield the total risk for the portfolio. The CME SPAN methodology next compares the resulting value with the short option minimum whichever value is larger is called the CME SPAN methodology risk requirement. Each combined commodity represents all instruments on the same ultimate underlying – for example, all futures and all options ultimately related to the S&P 500 index.For each combined commodity in the portfolio, the CME SPAN methodology evaluates the risk factors described above, and then takes the sum of the scan risk, the intra-commodity spread charge, and the delivery risk, before subtracting the inter-commodity spread credit. The CME SPAN methodology divides the instruments in each portfolio into groupings called combined commodities. ![]() The numeric value for each risk scenario represents the gain or loss that particular contract will experience for a particular combination of price (or underlying price) change, volatility change, and decrease in time to expiration. This is done by computing the gains and losses the portfolio would incur under different market conditions.At the core of the methodology is the CME SPAN risk array, a set of numeric values that indicate how a particular contract will gain or lose value under various conditions.Įach condition is called a risk scenario. The CME SPAN methodology evaluates overall portfolio risk by calculating the worst possible loss that a portfolio of derivative and physical instruments might reasonably incur over a specified time period (typically one trading day). ![]()
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