A look under the hood of Span 2, CME’s new margin engine

VAR-based framework has new ways of netting contracts and setting volatility floors and more

The devil’s in the details.

The CME Group is putting the finishing touches on its new value-at-risk margin framework Span 2, an abrupt break from the Span 1 vernacular, now in its fourth decade. As the fine print of Span 2 starts to seep out, risk managers are looking at where it departs from current orthodoxy.

The differences are stark. Among them: correlations for purposes of netting out contracts will be crunched by computer for an entire portfolio – a sea change from the manual, product-by