Variation Margin

Hello All, My understanding (from reading 72) is that “variation margin” is the amount required to bring the current balance up to the initial margin - once the balance dips bellow the maintenance margin requirement. Doing problem 8 of that section, the answer in the back is not consistent with that definition: Initial margin is \$150. At the end of day 1, the short has lost \$20, so he’s got a balance of \$130. The book says: “To meet the required maintenance margin of \$140, the short deposits \$10 variation margin” I think this is wrong - once the balance is less than the maint. margin, the trader should deposit a sum that gets him back to the initial margin - which would have been \$20 in this case.

Ah! Just checked the errata… Study Session 17, Reading 72: … Also, delete problem 8 at the end of this reading. This problem is no longer assigned. Wonder what that’s about. Does that simply mean there’s an error in the answer and they dumped the example rather than fix it? Or is there something in play in this question which is no longer covered by the curriculum? Thanks!

Ed, I agree with you on the calculation mistake. Variation margin is still clearly relevant to the LI curriculum (see below), but I suspect they opted to remove this problem rather than correct it because the LOS only requires candidates to “differentiate” and “define” these terms, rather than calculate them. CFAI Command Words (http://cfainstitute.org/cfaprog/courseofstudy/commandwords.html): differentiate: To mark or show a difference in; to develop different characteristics in. define: To set forth the meaning of; specifically, to formulate a definition of. calculate: To ascertain or determine by mathematical processes. LOS 72.b: differentiate between margin in the securities markets and margin in the futures markets; and define initial margin, maintenance margin, variation margin, and settlement price; http://cfainstitute.org/cfaprog/resources/pdf/l1_ss17.pdf