LCH.Clearnet's proprietary Portfolio Approach to Interest Rate Scenarios (PAIRS) margin methodology is used for the calculation of margin for OTC interest rate derivatives, foreign exchange derivatives and listed rate derivatives cleared at LCH.Clearnet:
• Listed Rates
PAIRS is an expected shortfall value-at-risk (VaR) model based on filtered historical simulation incorporating volatility scaling. The model uses either ten (OTC) or five (Exchange Traded) years of historical market data to simulate changes in portfolio value from which an estimate of the potential loss distribution is calculated.
In addition to PAIRS initial margin, LCH.Clearnet applies margin add-ons covering Credit Risk and Liquidity Risk where a particular member's inherent risk exposure is not captured within the PAIRS model.