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Quantitative Finance · Begrippenlijst

Wat is Loss spiral, margin spiral?

Ook bekend als: loss spiral · margin spiral

Definition 28.2 Markets III: Commodities, Energy and Crypto · Hoofdstuk 28 — When Markets Break Together

A loss spiral is the feedback in which a leveraged holder’s losses force it to sell, its sales lower prices, and the lower prices inflict further losses on it and on other holders of the same assets. A margin spiral is the feedback in which rising volatility raises margin requirements, the higher margins force deleveraging, and the forced sales raise volatility further.

The two spirals. A shock to one asset cuts leveraged holders’ equity and raises measured volatility and margins; both force sales of everything the holders own; the sales lower prices and raise volatility everywhere, feeding back into both. Schematic.
Figure 28.1. The two spirals. A shock to one asset cuts leveraged holders’ equity and raises measured volatility and margins; both force sales of everything the holders own; the sales lower prices and raise volatility everywhere, feeding back into both. Schematic.
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