Financial Engineering Case Study

Counterparty A Portfolio
• Long 100 lots EUA Dec-23 Futures
• Short 100 Lots EUA Dec-24 Futures
Counterparty A CSA
• €50,000 threshold Counterparty A
• €20,000 threshold Company
Counterparty B
• Long 100 lots EUA Dec-23 Futures
• Short 15 Lots TTF Oct-23 Futures
• Short 15 Lots TTF Nov-23 Futures
• Short 15 Lots TTF Dec-23 Futures
• Long 30 lots NBP Dec-23 Futures
Product references:
https://www.ice.com/products/197/EUA-Futures https://www.ice.com/products/27996665/Dutch-TTF-Natural-Gas-Futures https://www.ice.com/products/910/UK-NBP-Natural-Gas-Futures
Instructions:
• You are free to choose the metric and the methodology you deem more appropriate.
• Please illustrate your thought process.
Questions:
1. WhatisthemarketriskofCounterpartyAandCounterpartyB portfolios?
2. Assumingwehold€50,000collateralfromCounterpartyAandthatthe current mark-to-market of Counterparty A portfolio is €10,000 positive for them, if EUA Dec-23 futures price drops by €2.00/ton and EUA Dec- 24 price drops by €0.50/ton, is there a margin call? If so, what is the size of the margin call and who should pay it?