Microsoft PowerPoint - PoF.ppt

Marking to marketƒ 152

Margin Account

... to avoid the cost and inconvenience of

frequent but small payments from marking to market, losses are allowed to accumulate to certain levels

ƒ

initial margin

ƒ

maintenance margin

... minimum amount of margin required

ƒ

margin

= margint

t-1

+ CF

t

ƒ

if margin

t

< maintence margin

Ä

margin call

• initial margin must be restored, i.e. initial margin - margin

t

=

“variation margin

”t

• if ignored: gain

until t

/ loss

until t

and margin

t

ƒ

if margin

t

> initial margin

Ä

withdrawing possible s.t. margin

t

≥

initial margin

Derivative securities: Futures - Introduction