Liquidation risk
Estimates the probability that a leveraged position is liquidated within an hour to a week, and the leverage that keeps that risk low.
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Inputs
Instrument, side, entry, leverage, maintenance margin, stop.
Outputs
Liquidation price, probability of reaching it by horizon, stop-touch probability, risk table by leverage.
How it is reviewed
Predicted touch probability differed from the observed frequency by 1.8 points on average at one hour, 1.0 at four hours and 2.5 at one day. Reviewed every 14 days.
Limits
Isolated-margin formula, last price instead of mark price, tiered margin not modelled.
Versions
- v1.0
First version.