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In SAS® Risk Management for Banking and SAS® Risk Management for Insurance, the MARGIN_VARIATION_RT in the FINANCIAL_EXPOSURE data set specifies the margining rate to use in the valuation of forward contracts. A contract that is not purchased on margin uses a MARGIN_VARIATION_RT of zero, and in this case PM_FORWARD calculates the forward value correctly. However, for contracts purchased on margin (that is, where MARGIN_VARIATION_RT is not equal to zero), the forward value computed by PM_FORWARD is incorrect.

The correct calculation for the value of a long forward, taking margining into consideration, is (ignoring cost-of-carry, dividend, or yield):

In this formula, f is the contract value, S is today's spot price, K is the delivery price for the contract, T is the contract date of delivery, r is the T-year risk-free rate, and MVR is the value of MARGIN_VARIATION_RT.

PM_FORWARD uses this calculation, which is incorrect:

Click the Hot Fix tab in this note to access the hot fix for this issue.

Operating System and Release Information

A fix for this issue for SAS Risk Management for Banking 3.1 is available at:

A fix for this issue for SAS Risk Management for Insurance 2.1 is available at:

A fix for this issue for SAS Risk Management for Banking 3.1 is available at: