Abstract
This paper presents preliminary results of a computational experiment with the strategy-based approach and the risk-based approach to portfolio margining with the purpose to clarify which one yields lower margin requirements under different scenarios. There exists a widespread opinion that the risk-based approach is always a winner in this competition, and therefore the strategy-based approach must be disqualified as outdated. However, the results of our experiment with portfolios of stock options show that, in many practical situations, the strategy-based approach yields substantially lower margin requirements in comparison with the risk-based approach.
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References
Rudd, A., Shroeder, M.: The calculation of minimum margin. Manage. Sci. 28, 1368–1379 (1982)
Matsypura, D., Oron, D., Timkovsky, V.G.: Option spreads: centipedes that cannot have more than 134 legs. Working paper, The University of Sydney (2007)
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Coffman, E.G., Matsypura, D., Timkovsky, V.G. (2010). A Computational Study of Margining Portfolios of Options by Two Approaches. In: Prasad, S.K., Vin, H.M., Sahni, S., Jaiswal, M.P., Thipakorn, B. (eds) Information Systems, Technology and Management. ICISTM 2010. Communications in Computer and Information Science, vol 54. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-12035-0_32
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DOI: https://doi.org/10.1007/978-3-642-12035-0_32
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-12034-3
Online ISBN: 978-3-642-12035-0
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