Marking to market 151Daily settlement (“marking to market”) ...reduce thecredit risk / default risk for the CCMarking to market ... daily payment of the undiscounted change in the futures price; CFs arising from marking to market- long positon: CF
t=ft,T-ft-1,Ttotal gain/loss =fT,T-ft0,T= ST-ft0,T- short positon: CF
t=ft-1,T-ft,Ttotal CF =ft0,T-fT,T=ft0,T-STft... settlement price: generally closing price or average pricearound the closing price
Gain from defaulting for an investor = avoidance of a one-day marking-to-market outflowDerivative securities: Futures - Introduction