MVA: future IM for client trades and dynamic hedges

Alexandre Antonov, Serguei Issakov, Andy McClelland
06 Aug 2019

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New client trades affect banks’ hedging portfolios. This may impact the initial margin (IM) posted to client counterparties and to hedge counterparties. Alexandre Antonov, Serguei Issakov and Andy McClelland propose that IM for both sides should be forecast and reflected in MVA. Forecasting IM for dynamic hedges of non-vanillas is complicated by the need for future hedge ratios. These can be recovered by combining the future sensitivities used in client-side IM with

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