''Margining risk'' is a

financial risk Financial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial ...

that future

cash flow A cash flow is a real or virtual movement of money: *a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...

s are smaller than expected due to the payment of

margin Margin may refer to: Physical or graphical edges *Margin (typography), the white space that surrounds the content of a page *Continental margin, the zone of the ocean floor that separates the thin oceanic crust from thick continental crust *Leaf ...

s, i.e. a

collateral Collateral may refer to: Business and finance * Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan * Marketing collateral, in marketing and sales Arts, entertainment, and media * ''Collate ...

as deposit from a

counterparty A counterparty (sometimes contraparty) is a legal entity, unincorporated entity, or collection of entities to which an exposure of financial risk may exist. The word became widely used in the 1980s, particularly at the time of the Basel I deliberat ...

to cover some (or all) of its

credit risk A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...

. It can be seen as a short-term

liquidity risk Liquidity risk is a financial risk that for a certain period of time a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price. Types Market liquidity – An asset cannot be so ...

, a quantity called

MaR Mar, mar or MAR may refer to: Culture * Mar or Mor, an honorific in Syriac * Earl of Mar, an earldom in Scotland * MAA (singer) (born 1986), Japanese * Marathi language, by ISO 639-2 language code * March, as an abbreviation for the third ...

can be used to measure it.

Methodology

In order to decrease the risk of a counter party to default, a technique called ''portfolio margining'' is applied, which simply means that the

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that ca ...

s within a

portfolio Portfolio may refer to: Objects * Portfolio (briefcase), a type of briefcase Collections * Portfolio (finance), a collection of assets held by an institution or a private individual * Artist's portfolio, a sample of an artist's work or a ...

are clustered and sorted by the descending projected net loss, e.g. calculated by a pricing model. One can then determine for which cluster(s) one wants to perform

margin call ''Margin Call'' is a 2011 American drama film written and directed by J. C. Chandor in his feature directorial debut. The principal story takes place over a 24-hour period at a large Wall Street investment bank during the initial stages of the ...

References

Credit risk {{finance-stub