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ICE Risk Model 2 Methodology

ICE Risk Model (IRM) 2 utilizes a Filtered Historical Simulation (FHS) Value-at-Risk (VaR) approach that models the behavior of a portfolio as a whole rather than measuring risk on an instrument by instrument basis. IRM 2 leverages a portfolio-level perspective by capturing all relationships and diversifying effects within a portfolio. Unlike IRM 1, there is no need to configure the thousands of separate array parameters.

IRM 2 Initial Margin Flow

Risk Factor

Risk Factors are representations of the factors driving valuation changes. They may be a price, return or rate.

Risk Factor Construction

Risk Factors are constructed from prices of observable instruments.

Scaling & Scenarios

The return Risk Factors are scaled in order to produce scenarios that reflect current market volatility and incorporate various risk and regulatory requirements.

Instrument P&L Scenarios

Instrument P&Ls simulations are generated by using top day risk factors derived prices, and scenario prices derived using scaled risk factor scenarios. Pricing functions are used in the transformation of the Top Day Risk Factors (Base Price) as well as Scaled Scenarios (Simulated Price) back to observable instrument prices.

Initial Margin

The instrument P&L simulations are aggregated at the portfolio level and then combined with other components designed to comply with regulatory and risk requirements producing a final initial margin.

IRM 2.0 Initial Margin Flow

IRM 2 Model Components

The overall IRM 2 portfolio margin requirement comprises two components, the portfolio’s Initial Margin (IM) and separately, the portfolio’s Liquidity Risk Charge (LRC).

In turn, the IM and LRC components encompass sub components which are designed to capture specific risk elements. Collectively, the risk elements support the deep granularity of the overall IRM 2 model.

IRM 2 requirement chart


IRM 2 Overview

ICE Clearing Analytics



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ICE Clearing Analytics

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