The time between the last exchange of margin and the point at which a defaulted counterparty's positions are closed out and replaced. A longer period means larger potential exposure.
Where you will meet it
Margin period of risk comes up in 14 learning outcome notes across the FRM syllabus.
A few of them:
Exchanges and OTC Markets FRM Part I · Financial markets and products
“Unlike a CCP's margin, which is standardised and always two-way, OTC collateral leaves residual exposure from the threshold and from the margin period of risk.”
Derivatives FRM Part II · Credit risk measurement and management
“Risk remains because default is followed by a margin period of risk of several days in which the position moves, and eligible collateral can lose value.”
Central Clearing FRM Part I · Financial markets and products
“Initial margin covers the potential loss while the defaulter's portfolio is closed out, which is the margin period of risk.”
Counterparty Risk and Beyond FRM Part II · Credit risk measurement and management
“This leaves residual exposure over the margin period of risk.”
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