> For the complete documentation index, see [llms.txt](https://docs.fortemis.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.fortemis.io/methodology.md).

# Methodology

All methodology parameters live in versioned configuration under maker-checker control — never in code. Every official run records the exact configuration versions in force at its valuation timestamp.

## Exposure (methodology `exposure-v1`)

Every instrument maps to an underlying; every position is a signed USD delta notional. Three headline figures are always shown together:

* **Gross (unnetted)** — Σ|leg|: the margin/counterparty footprint. A $30m long spot + $30m short perp in BTC is **$60m** here.
* **Gross (netted)** — Σ|net delta per underlying|: economic exposure. The same basis trade is **$0** here.
* **Net** — the signed sum: directional tilt.

Long/short splits satisfy enforced identities (Long + Short = Net; Long − Short = Gross netted). Stablecoins are excluded from directional exposure and reported as their own block by issuer — never called "cash". Fiat is a separate line. Methodology changes version visibly; history is never silently reinterpreted.

## Value at Risk & Expected Shortfall

**Primary (official series):** age-weighted historical simulation — each historical day's returns are applied to today's positions (full revaluation; correlation captured implicitly), with recent days weighted more heavily. 365-day lookback, 365-day annualisation, calendar days throughout. Result: price-risk VaR at the configured confidence, always decomposed alongside a **liquidity cost** into **LVaR** — no bare VaR number exists anywhere in the system.

**Supplementary levels:** plain (unweighted) historical VaR at 95% and 99% and Expected Shortfall at 97.5%, computed from the *same* scenario P\&L vector, reported alongside the primary — labelled with their basis, never replacing the official series.

**Liquidity cost:** currently tiered haircuts (disclosed as expert judgment on every report); transitions per-instrument to measured spread-based cost as observation thresholds are met — by configuration change, with the discontinuity flagged automatically in reporting.

**Backtesting:** clean daily P\&L against the prior day's price-risk VaR, with honest small-sample statistics and the standard traffic-light test as history accrues.

## Days to Liquidate (`dtl-v1`)

DTL = |net delta| ÷ (aggregated cross-venue ADV × participation rate, default 5%). Reported normal and stressed (50% volume haircut — volume evaporates exactly when you need to sell), with a 1/5/10/30-day liquidation ladder and a redemption-coverage check against the fund's dealing terms. Assets without volume data are disclosed as *unmeasured* — never assumed liquid.

## Derivatives risk

Per perp position from venue data: leverage, margin mode, liquidation price, distance-to-liquidation (recomputed every snapshot, never cached) and current funding. Any position within the configured distance of liquidation pages the alert channel at every 30-minute poll.

## Limits

Every limit is an interval with hysteresis (enters at 100%, exits below 95%), not a point: transient touches are logged, sustained breaches alert, escalate and require named acknowledgement with a note.


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