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Marking to marketƒ 151

Daily settlement (“marking to market”) ...

reduce the

credit risk / default risk for the CC

ƒ

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
ƒ

Gain from defaulting for an investor = avoidance of a one-day marking-to-market outflow

Derivative securities: Futures - Introduction

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