Requirements and netting
Initial, maintenance, liquidation and why spreads net.
Initial and maintenance requirements are multiples of the scenario loss.
| Quantity | Multiple | Meaning |
|---|---|---|
| initial | 1.3 | required to open new risk |
| maintenance | 1.0 | below this the account is liquidatable |
| advance | 1.1 | haircut for lending against risk already held |
Liquidation level
Solved numerically by bisection. A portfolio of options admits no closed form for the spot at which it becomes liquidatable, and any closed form that did exist would be invalidated by adding a second leg.
Netting
Because the requirement is a function of the portfolio rather than a sum over positions, offsetting legs net automatically.
Measured
Converting a naked short call into a vertical spread reduces the initial requirement from $178.31 to $74.83, a reduction of 58.0%, with no special case for spreads anywhere in the implementation. A perfectly flat book requires zero margin, verified as a test rather than assumed.