Abstract
The Initial Margin is an amount of collateral that CCPs and Regulators require dealers to post beside Variation Margin. Computing the funding cost associated to Initial Margin requirements, at times called MVA (Margin Value Adjustment), presents both conceptual and computational challenges. Here we propose a method that, differently from other proposals in the literature, does not involve nested monte carlo simulations under different probability measures, but only risk-adjusted simulation without approximations. Since in some cases this method is computationally intensive, in the next we show how to achieve computational efficiency by exploiting mathematical inequalities for skipping lenghty calculations without affecting fi nal results. We conclude by showing some numerical analysis of the computational performances and some empirical veri cation of the soundness of the outcomes.
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