Options liquidation can be costly. How costly?
New model uses open interest and volume data to calculate the expense of selling an options portfolio during times of stress
The options trading boom shows little sign of fizzling out. Average daily volumes of cleared options are more than double pre-pandemic levels, and continue to rise, according to data from the Options Clearing Corp.
When bets go sour, dealers are sometimes forced to liquidate options portfolios. This process can result in slippage and additional losses due to lack of liquidity. So, firms often hold a liquidity add-on component to the margin or capital requirement, which is meant to cover the
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Comment
Banks must break data silos to improve pricing decisions
Data consistency is increasingly key to judging risk and reacting quickly in a crisis, writes former XVA practitioner
Reframing the Fed’s discount window
Funding window incentives and collateralised credit lines could transform bank liquidity in a crisis, argues Bill Nelson
Decoding the decoupling in US and eurozone inflation
ECB rates cut and Fed’s refusal to follow suit point to differing fundamentals in stateside and EU economies
Op risk data: Japan’s giant bitcoin break-in makes a monster loss
Also: Citi’s fat-finger fallout; HSBC pays for unfair customer treatment; Visa and Mastercard fined over ATM fee-fixing. Data by ORX News
How Argentina’s financial tango could become a dance of death
Central bank and government’s unholy alliance is storing up further trouble for economy
Op risk data: TD Bank takes US reg pill in purported drug-related AML fails
Also: SCB fraud bill rising fast; Postbank pain for Deutsche Bank. Data by ORX News
Podcast: Olivier Daviaud on P&L attribution for options
JP Morgan quant discusses his alternative to Greeks decomposition
Falling T2 balances bode well for eurozone’s stability
Impact of fragmentation would be less severe today than in 2010s, says Marcello Minenna
Most read
- Harvesting the FX skew premium
- How steepener trades burned hedge funds, and what happened next
- House of cards? The $3 trillion (non-systemic) real estate risk