Risk Engine

The risk engine is the measurement layer. It reads each market and publishes the values every other module depends on.

Inputs

Input	Source	Why it matters
Order book	Live venue feed	Current depth and the executable price of size
Trade record	Venue's authoritative log	Signed flow, because display feeds get direction wrong on much of activity
Venue metadata	Venue	The market, its resolution source, and its class

Outputs

Per market, the engine publishes six values.

Output	What it is
Eligibility verdict	Whether the market can back credit at all
Conservative value	The collateral value the engine will defend
Borrowing limits	How much can be borrowed against the position
Credit pricing	The terms credit is written at
Exposure caps	The ceiling on total exposure to the market
Liquidation mode	How a position is unwound if it fails

Principles

Four principles govern how the engine values collateral.

Prices are not probabilities

A quoted price is what the position trades at, not a calibrated chance of the outcome. The engine treats it as a market price to be stressed, never as truth.

Conservative by construction

Collateral is marked at the most pessimistic of several prices, never the last trade:

P_{\text{mark}} = \min\bigl(P_{\text{mid}},\ \text{TWAP},\ P_{\text{depth}}(Q)\bigr)

In one line

Collateral is valued at the worst of what the screen shows, what the market has averaged recently, and what the current bids would really pay for the whole position.

On top of this conservative mark, a chain of multiplicative haircuts for liquidity, time to resolution, resolution class, volatility, and spread produces the stress value the engine will actually defend:

V_{\text{liq}} = Q \cdot P_{\text{mark}} \cdot H_{\text{liq}} \cdot H_{\text{exp}} \cdot H_{\text{res}} \cdot H_{\text{vol}} \cdot H_{\text{spr}}

In one line

On top of the conservative mark, five separate penalties (liquidity, time, resolution type, volatility, and spread) produce the stress value the engine can actually stand behind.

The form and parameters of each haircut are part of the engine specification; the resulting values are published live per market.

Measured from authoritative records

Every input traces to the venue's own trade record, so the output is reproducible.

No defensible value, no credit

If the engine cannot establish a stress value it stands behind, the market is ineligible and nothing is lent.

The published values are transparent and checkable. The pricing internals behind them are not reproduced here; the formal treatment is in the Cusp whitepaper.