Portfolio Margin

Kyan uses a portfolio margin (PM) system to dynamically calculate risk and margin requirements based on the net exposure of an entire portfolio, rather than treating each position in isolation.

Below, we’ll walk through how portfolio margin is structured and how it’s calculated.

What Is a Portfolio on Kyan?

On Kyan, a portfolio refers to the collection of positions and collateral associated with a specific underlying asset. Each supported product (BTC, ETH, or ARB) has its own isolated portfolio within a user's account. Margin, PnL, and risk are tracked separately for each asset.

Portfolio Margin vs Isolated Margin

In traditional margin models, each position has fixed margin requirements, and risk is assessed on a per-trade basis (isolated position margin).

Kyan’s portfolio margin model evaluates the combined risk of all positions in a portfolio. For example, a long call and a short call at different strikes may partially offset each other, requiring less margin than if they were treated independently.

Note: Isolated position margin is included in Kyan's development plans.

How Margin Is Calculated

The portfolio margin system determines two key values for each portfolio:

Initial Margin (IM): The collateral required to open or maintain a position. If equity drops to the IM level, the user can no longer increase risk (i.e., take on new exposure), but they can still reduce it.
Maintenance Margin (MM): The minimum collateral required to keep the portfolio solvent. If equity falls below MM, the system begins liquidation (view the liquidation documentation).

The margin requirements change in real time based on the current market environment and the portfolio’s structure.

IMr and MMr: Real-Time Risk Metrics

To help traders monitor their account health, Kyan exposes two live metrics per portfolio:

Initial Margin Ratio (IMr)

If IMr < 100%, the user can increase exposure.
If IMr ≥ 100%, no new directional risk can be added. Only risk-reducing actions (e.g., closing or hedging positions, adding equity) are allowed.

Maintenance Margin Ratio (MMr)

If MMr < 100%, the account is safe.
If MMr ≥ 100%, liquidation begins to restore portfolio health.

These ratios change dynamically with market movements and position adjustments, giving users real-time visibility into their margin status.

Risk Engine

Kyan’s risk engine continuously evaluates each portfolio to determine required margin and risk exposure.

TotalRisk = ProductRisk + SystematicRisk

SystematicRisk: The overall risk exposure the protocol carries across all users and all assets.

ProductRisk = RiskMatrix + DeltaShock + RollRisk

DeltaShock: The directional exposure of the portfolio.
RollRisk: Accounts for the sudden change in portfolio risk that occurs when options with different expiration dates offset each other and one expires.

RiskMatrix: Core Risk Quantification

RiskMatrix = SpotShock + IV Shock + VegaRisk + FatTailsRisk

SpotShock: Simulates moves in spot price.
IVShock: Simulates changes in implied volatility.
VegaRisk and FatTailRisk: Capture edge cases and rare events.
The worst-case PnL outcome is used to calculate margin.

The RiskMatrix evaluates portfolios across a comprehensive shock grid:

9 spot price scenarios: From -24% to +24% moves (configurable range, default 24%, divided into 9 equally-spaced shocks).
3 volatility scenarios: Down shock, no shock, and up shock applied simultaneously:
- Short-term options (< 30 days) have higher sensitivity (vega power = 0.30), long-term options (≥ 30 days) have lower sensitivity (vega power = 0.13).
- Up shocks: Minimum volatility floor of 60% to prevent unrealistic scenarios.
- Down shocks: Can reduce volatility significantly but maintain positivity.
Extended scenarios: For extreme tail risk, additional shocks up to +500% spot moves.

Total: 27 standard + 16 extended = 43 market scenarios evaluated per portfolio.

This matrix doesn’t solve risk but quantifies it in real time.