文章基本信息

标题：A NOVEL BINOMIAL TREE APPROACH TO CALCULATE COLLATERAL AMOUNT FOR AN OPTION WITH CREDIT RISK
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作者：SASTRY KR JAMMALAMADAKA ; KVNM RAMESH ; JVR MURTHY 等
期刊名称：Journal of Theoretical and Applied Information Technology
印刷版ISSN：1992-8645
电子版ISSN：1817-3195
出版年度：2015
卷号：72
期号：1
出版社：Journal of Theoretical and Applied
摘要：Options traded over-the-counter are associated with credit risk and are called vulnerable options. Collateral can be taken to mitigate the credit risk. However the amount of collateral should be such that it shouldn�t take into account the almost not plausible states of the underlying which when considered increases the required collateral amount. This paper proposes a methodology to calculate the optimum collateral amount that is required from the seller of a vulnerable option. The calculated collateral makes the vulnerable option as risky as the exchange traded option. The algorithm to calculate the optimum collateral uses the novel binomial decision tree built without any assumption on the underlying distribution. The study reveals that the price of a vulnerable option converges to an exchange traded option as the collateral amount reaches a certain optimum value. The proposed methodology will be of interest to the option seller so that the excess collateral above the optimum collateral can be used for some other purposes.
关键词：Binomial Tree; Credit Risk; Collateral Amount; Option pricing; Venerable options; Margin Computation