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  1. 01 VM Calculation
  2. 02 VM Cover
  3. 03 VM Tracking

VM Calculation

VM is a daily calculation which uses the end-of-day valuations of all the trades in a portfolio. The procedure for calculating VM follows these steps:

  • Calculate an end-of-day valuation for every trade in the relevant portfolio. There may be a provision in your CSA to use mid-market prices for the valuations, check your documentation.
  • For each trade in the portfolio
    • If the trade is making profit for your firm, keep the valuation as a positive value
    • If the trade is making a loss for your firm, make the valuation a negative value
  • Add up all the positive and negative valuations to arrive at today's net valuation for the entire portfolio
  • Subtract yesterday's net valuation from todays net valuation to arrive at today's variation margin
  • If the amount of variation margin has gone up
    • Call your counterparty for assets to cover that increase
  • If the amount of variation margin has gone down
    • Expect to receive a call from your counterparty to return assets

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