Volatility Adjusted Margin

Volatility Adjusted Margin is a quantitative approach that scales the required collateral for a derivative position based on the underlying asset's historical and implied volatility. By applying a multiplier derived from market risk metrics, the protocol ensures that positions in highly volatile assets have a larger buffer against price fluctuations.

This prevents positions from hitting liquidation thresholds prematurely due to normal market noise while ensuring they are protected against significant directional moves. It is a form of risk-sensitive margin management that aligns collateral requirements with the actual probability of price movement.

This technique improves capital efficiency for low-volatility assets while maintaining strict safety for high-risk instruments. It is a critical component of sophisticated margin engines.