Scenario Grid
The scenario grid parameters on this page are subject to change during Mobile Testnet. Final values will be determined through backtesting and real-world calibration. Do not hardcode these values in trading systems.
The scenario grid is the core of Portfolio Margin. It defines a set of hypothetical market shocks, and your margin requirement is the worst-case loss across all of them.
This page provides an interactive calculator so you can see how different positions behave under each scenario.
Interactive Calculator
Select a position type, adjust DTE and IV, and see the PnL for each scenario. The worst-case scenario (red ring) determines your margin requirement.
View all scenario PnLs as table
| # | Spot | Vol | Weight | PnL | Description |
|---|---|---|---|---|---|
| T2 | +25% | +55% | 0.6 | $-11.47 | Massive rally with high vol expansion. 60% weighted. |
| T4 | +40% | +70% | 0.35 | $-11.45 | Extreme rally with vol explosion. 35% weighted. |
| 1 | +12% | +35% | 1 | $-8.34 | Rally with vol expansion. Tests short call exposure. |
| 10 | +12% | +0% | 1 | $-5.68 | Strong rally, vol unchanged. Tests upside delta exposure. |
| 12 | +8% | +25% | 1 | $-5.25 | Rally with moderate vol increase. Bullish excitement. |
| 2 | +8% | +0% | 1 | $-3.12 | Moderate rally, vol unchanged. Pure directional move up. |
| 4 | +0% | +35% | 1 | $-3.11 | Flat spot, vol spike. Tests pure vega exposure. |
| 5 | +0% | +0% | 1 | +$0.00 | No change. Baseline scenario, captures theta decay. |
| 3 | +4% | -15% | 1 | +$0.15 | Small rally with vol compression. Calm grind higher. |
| 6 | +0% | -15% | 1 | +$1.36 | Flat spot, vol crush. Tests short vega benefit. |
| 13 | -8% | +35% | 1 | +$2.78 | Selloff with vol spike. Fear-driven move down. |
| T3 | -40% | +90% | 0.35 | +$3.07 | Black swan crash. Near-doubled vol. 35% weighted. |
| 9 | -12% | +45% | 1 | +$4.18 | Sharp selloff with major vol spike. Crash-like dynamics. |
| T1 | -25% | +70% | 0.6 | +$4.31 | Severe crash with extreme vol spike. 60% weighted. |
| 7 | -4% | -15% | 1 | +$4.45 | Small dip with vol compression. Unusual but possible. |
| 8 | -8% | +0% | 1 | +$5.51 | Moderate selloff, vol unchanged. Pure directional move down. |
| 11 | -12% | +0% | 1 | +$7.08 | Sharp selloff, vol unchanged. Tests downside delta exposure. |
How the Grid Works
Each scenario applies two simultaneous shocks:
- Spot shock: The underlying price moves up or down by a fixed percentage
- Vol shock: Implied volatility scales by a multiplicative factor
The system reprices every position in your portfolio under each scenario using Black-Scholes, then records the portfolio PnL. Your margin is the largest loss across all scenarios.
Why multiplicative vol shocks?
Vol shocks are multiplicative, not additive. A "+35% vol shock" means IV is multiplied by 1.35, not that 35 percentage points are added.
This matters because the same absolute vol change has very different significance at different IV levels. A 35-point increase from 40% IV (to 75%) is dramatic. From 100% IV (to 135%), it is more modest in relative terms. Multiplicative shocks scale proportionally.
Core Scenarios (13)
These scenarios cover the most likely stress events. All have a weight of 1.0, meaning the full PnL is used.
| # | Spot | Vol | Rationale |
|---|---|---|---|
| 1 | +12% | +35% | Rally with vol expansion |
| 2 | +8% | 0% | Moderate rally, vol unchanged |
| 3 | +4% | -15% | Small rally, vol compression |
| 4 | 0% | +35% | Flat spot, vol spike |
| 5 | 0% | 0% | No change (baseline) |
| 6 | 0% | -15% | Flat spot, vol crush |
| 7 | -4% | -15% | Small dip, vol compression |
| 8 | -8% | 0% | Moderate selloff, vol unchanged |
| 9 | -12% | +45% | Sharp selloff with vol spike |
| 10 | +12% | 0% | Strong rally, vol unchanged |
| 11 | -12% | 0% | Sharp selloff, vol unchanged |
| 12 | +8% | +25% | Rally with moderate vol increase |
| 13 | -8% | +35% | Selloff with vol spike |
Design principles
Asymmetric vol response: Down moves get larger vol increases than up moves. This reflects real market behavior: crashes cause vol to spike harder than rallies.
- Spot -12% gets +45% vol (scenario 9) vs Spot +12% gets +35% vol (scenario 1)
- Spot -8% gets +35% vol (scenario 13) vs Spot +8% gets +25% vol (scenario 12)
Correlation is built in: The grid does not need a separate correlation model. The asymmetric vol shocks encode the spot-vol correlation directly.
Vol-only scenarios: Scenarios 4-6 test what happens when IV moves without a spot change. This captures vega risk in isolation.
Tail Scenarios (4)
Extreme scenarios that test for rare but severe events. These use partial PnL weighting to avoid over-penalizing positions that would only lose money in true black swan events.
| # | Spot | Vol | Weight | Effective PnL |
|---|---|---|---|---|
| T1 | -25% | +70% | 0.60 | 60% of raw loss |
| T2 | +25% | +55% | 0.60 | 60% of raw loss |
| T3 | -40% | +90% | 0.35 | 35% of raw loss |
| T4 | +40% | +70% | 0.35 | 35% of raw loss |
Why partial weighting?
Without weighting, tail scenarios would dominate margin requirements for almost every position. A -40% spot shock would require enormous margin even for well-hedged portfolios.
Partial weighting says: "We care about tail risk, but we do not require you to fully margin against a 40% crash." The 0.35 weight on T3/T4 means only 35% of the calculated loss counts toward margin.
Position Behavior Across the Grid
Different position types have characteristic "worst scenarios." Understanding these patterns helps you anticipate your margin requirements.
Short Calls
Worst case: up + vol up
- Most margin comes from scenarios 1, 10, 12 (spot up)
- Tail scenario T2 (+25% spot) or T4 (+40%) can dominate
- Vol increases make it worse (call value rises with vol)
- Scenarios 8, 9, 11 (spot down) are favorable
Short Puts
Worst case: down + vol up
- Most margin comes from scenarios 9, 11, 13 (spot down)
- Tail scenario T1 (-25%) or T3 (-40%) dominates
- Asymmetric vol shocks make downside scenarios worse
- Scenarios 1, 2, 10 (spot up) are favorable
Bull Call Spread
Reduced margin from natural hedge
- Short leg offsets long leg in most scenarios
- Worst case is usually spot down (both legs expire worthless)
- Max loss is capped at spread width minus premium
- Significant margin reduction vs naked short call
Short Straddle
Worst case: large move in either direction
- Tail scenarios dominate (T1-T4 all hurt)
- Worst is usually T3 or T1 (deep crash with huge vol spike)
- Call and put partially offset, but not enough in tails
- Vol-only scenarios (4, 6) test vega exposure
Scenario Grid vs Standard Margin
| Aspect | Scenario Grid (Portfolio) | Per-Position (Standard) |
|---|---|---|
| Calculation | Reprice all positions under 17 scenarios | Fixed formula per position |
| Hedging credit | Automatic: offsets reduce worst-case loss | None: each position margined independently |
| Vol sensitivity | Explicit: vol shocks test vega risk | Implicit: built into premium-based formulas |
| Tail risk | Weighted tail scenarios (T1-T4) | Not modeled |
| Complexity | More complex, more accurate | Simpler, more conservative |
The scenario grid does not "know" about position types or strategies. It does not check if you have a spread or a straddle. It simply reprices everything under each scenario and records the PnL. Hedging benefits emerge naturally from the math.
Safety Add-ons
The scenario grid alone may understate risk in certain edge cases. Two safety mechanisms address this:
1. Minimum Margin Floor
A percentage-of-notional floor for net short option positions, per underlying. Even if the scenario grid shows minimal risk, short options always require some minimum margin.
See Margin Floor for the formula and parameters.
2. Short-Dated Gamma Kicker
Extra margin for options expiring within 48 hours. Near expiry, gamma accelerates rapidly, and the scenario grid's discrete shocks may underestimate the true risk of sharp moves.
The final margin is:
See Also
- Portfolio Margin - Full portfolio margin documentation
- Standard Margin - Per-position margin model
- Margin Floor - Minimum margin requirements
- Black-Scholes - The pricing model used in scenario repricing
- Greeks Overview - How Greeks relate to scenario sensitivities