Marking to market 151
Daily settlement (“marking to market”) ...
reduce the
credit risk / default risk for the CC
Marking to market ... daily payment of the undiscounted change in the futures price; CFs arising from marking to market
- long positon: CF
t
=
ft,T
-f
t-1,T
total gain/loss =
fT,T
-f
t0,T
= S
T
-f
t0,T
- short positon: CF
t
=
ft-1,T
-f
t,T
total CF =
ft0,T
-f
T,T
=f
t0,T
-S
T
ft
... settlement price: generally cl
osing price or average price
around the closing price
Gain from defaulting for an investor = avoidance of a one-day marking-to-market outflow
Derivative securities: Futures - Introduction