It is bad that I had to do this but IB keeps the workings of portfolio margin 'proprietary'. I can't find anything useful in the documentation and the reps are trained not to tell. The first bad thing is that the margin can change fast. One evening I saw 20% excess liquidity. The next morning I positions liquidated. When I check my account, I still had 10% excess. So a swing in the first hours bit me off guard. After a few wounds, I started analyzing the workings of PM. This is what I figured out, mainly for option portfolios. The margin calculation of a single position is based on exposure (delta*100*sharePrice), and volatility. In my account the margin is roughly Mgn = exposure*Vol/2 In the case of a group of positions on same underlying, the exposures are calculated on both sides, positive and negative, and the higher absolute value is used. So if you do a straddle or strangle, the side with higher delta determines the margin. This is friendly for delta-neutral trades -- you get one side free. When it comes far OTM and long maturity options, high deltas (0.3) are used in calculating the exposure, resulting in unreasonably high exposure, the hence margin. The margin policy forces you to use near-the-money spreads. Shorting naked calls can cost more than shorting the stock itself if the vol is high. Do you guys have similar realizations?
https://www.interactivebrokers.com/smf/index.php?topic=52247.0 Lookslike one guy (quantivity) found the algorithm. For long time I'm looking for the portfolio margin algorithm to stress-test the IB account.
Our PM calculations are based on TIMS. You can find quite a lot about TIMS on the Internet. We added a few additional check ups on the top of it. The whole description is a good book. Even if we decide to publish this book one day, it will not help. A large amount of data is necessary every day. In particular, the OCC risk parameters, which are not publicly available.
FWIW, Here is the Australian Stock exchange's explanation of TIMS. Note that IDS says IB has a few "tweaks", whatever that means.
You can find more here: http://www.interactivebrokers.com/en/p.php?f=margin Please click on PMargin tab.
From what I understand, the OCC runs Monte Carlo simmulations to get it's parameters. It is quite time consuming so that may be part of why they don't disseminate them.
You know this is the one thing that annoys me about IB. Great broker, great rates, and great execution. BUT when it comes to being able to stress test your portfolio absolutely CRAP! Sure there are a couple of tools, but they are trivial. They show me what is currently happening. GEE DUH as if I can't see that myself. What I would like from IB is a sophisticated What If! The only WhatIf I have now is the flag when I submit it via the API. I would even love a simplified rule of thumb edition to do a what-if. The reason I say this is because last year when brokerages went draconian on the margins it caused more grief. Had there been a whatif maybe things would not have been as bad.
Ditto. The Risk Navigator is too crappy to be useful -- it is more like a teaser. The exposure calculation for far out options gives far-out over-estimates. The P&L chart for a complex option portfolio is almost meaningless if you have SPX and SDS. A what-if should let me vary IV on a group of underlyings, vary maturities, should understand the correlation among underlyings (xlf, skf, fas), should give objective-based guide (what to liquidate to reduce margin, to reduce exposure) and most importantly, display margin as a metric, the same way as the greeks. IB's description of pmargin is particularly dumb, stupid and misleading. checkmargin is also crappy and totally unreliable.
LOL... I loved the "it is more like a teaser"... I like your comments on what it should and should not do. This has me thinking. Would a professional web service be of interest to people? You know give a set of underlyings, and let people model and stress test the system... Of course not for free...