Price Scan Range
Also written PSR · Price Scan Range (PSR)
The probable one-day price change used in SPAN margining — based on 6 standard deviations, subject to a minimum percentage of the underlying (1.50% for USDINR).
In plain language
Initial margin has to cover the loss a position could reasonably suffer before the clearing corporation can collect more money. SPAN works that out by shocking the price of the underlying up and down and seeing what happens to the portfolio.
How big a shock? That is the Price Scan Range (PSR). The workbook's definition: the probable price change over a one-day period.
It is set by the clearing corporation, based on 6σ (six standard deviations of daily price moves) subject to a minimum percentage of the underlying price. The more volatile a currency pair, the wider its scan range and the higher its margin.
How it works
Minimum PSR by product (Chapter 7, section 7.9.1.1.1):
| Product | Minimum PSR |
|---|---|
| USDINR | 1.50% |
| EURINR | 2.15% |
| GBPINR | 2.25% |
| JPYINR | 2.65% |
| EURUSD, GBPUSD, USDJPY | 2.50% each |
Volatility. σ is estimated by EWMA (exponentially weighted moving average), with λ fixed at 0.995.
Volatility Scan Range. For option positions SPAN also shocks volatility: 25% of annualised EWMA volatility, subject to a minimum of 3%.
Scenarios. SPAN combines price and volatility shocks into 16 "what-if" scenarios and takes the highest loss across the client's whole portfolio on the same underlying — not position by position.
The wider framework. Initial margin is based on 99% VaR over one day — or two days for futures where MTM cannot be collected before next day's trading. Risk parameters are updated at 11.00 am, 12.30 pm, 2.00 pm, 3.30 pm, 5.00 pm, 6.30 pm, end of day and beginning of day.
Cross-currency pairs. Margins are collected in INR, so the PSR is scaled up by the total futures margin rate of the contract linking the quoted currency to INR.
The formula
PSR = max(6σ, minimum % of underlying price)
Volatility Scan Range = max(25% × annualised EWMA volatility, 3%)
Price shock on one lot = Underlying price × PSR × Lot size
A worked example
Illustrative. The price, lot count and the assumption that 6σ is below the minimum are hypothetical; the percentages are the workbook's.
USDINR futures are at 83.00. Suppose 6σ of recent daily moves works out to 1.2% — below the floor — so the minimum PSR of 1.50% applies.
Price scan per USD = 83.00 × 1.50% = Rs 1.245
Per lot (USD 1,000)= 1.245 × 1,000 = Rs 1,245
For a client long 50 lots with no offsetting positions, SPAN's worst price scenario is a fall of Rs 1.245:
Scan loss = 1,245 × 50 = Rs 62,250
That is the heart of the SPAN initial margin for this position. On top, the clearing corporation levies extreme loss margin — 0.50% of value for USDINR futures:
ELM = 83.00 × 50 × 1,000 × 0.50% = Rs 20,750
A JPYINR position of the same rupee value would be scanned at 2.65% — about 1.77 times the USDINR scan — because yen-rupee is the most volatile of the INR pairs by this measure.
Why NISM asks about it
Chapter 7, section 7.9.1.1.1 (Computation of Initial Margin), explains SPAN, 99% VaR, the one- and two-day horizons, 16 scenarios, the PSR table, EWMA with λ = 0.995, the volatility scan range and the update times. The PSR minimums and the extreme loss margin table next to it are classic number questions.
Common exam traps
- PSR is a one-day price move, based on 6σ, not 3σ and not 99% VaR directly.
- USDINR minimum 1.50%; JPYINR highest at 2.65%; the three cross pairs 2.50%.
- λ = 0.995 in the EWMA.
- Volatility scan range is 25% of annualised EWMA volatility, minimum 3% — a different parameter from PSR.
- SPAN margins the whole portfolio, taking the worst of 16 scenarios.
- Extreme loss margin is separate from and in addition to SPAN initial margin.
Where this is taught
Free preparation for NISM Series IVRelated terms
- Value at RiskA statistical estimate of the most a position is likely to lose over a set holding period at a chosen confidence level — the idea behind the initial margin a clearing corporation charges on a derivatives trade.
- Extreme Loss MarginA flat 3.5 per cent margin collected on cash-market positions to cover losses falling outside what the VaR margin is designed to capture.
- SPANThe scenario-based system clearing corporations use to compute initial margin — it revalues a client's whole derivatives portfolio under sixteen what-if scenarios and charges the worst loss.
- Margin on consolidated crystallized obligationPart of initial margin that blocks a client's net payable from closed-out futures profit or loss and option premium intraday, and all settlement obligations at end of day, until settlement.
- Initial marginThe deposit both the buyer and the seller of a futures contract must place before the position is accepted, sized to cover a 99% worst-case one-day loss on that position.
- Volatility Scan RangeThe percentage volatility movement SPAN applies when scanning a portfolio for its worst-case loss, floored by SEBI at levels that depend on the commodity type and its annualised volatility.