Optimal Posting of Sticky Collateral

29 Pages Posted: 1 May 2013

Date Written: January 3, 2013

Abstract

We study optimal strategies for posting collateral for OTC derivatives under Credit Support Annexes (CSAs) where "substitution rights'' either do not exist or are hard to enforce. We present a simplified model which we are able to solve approximately in an efficient manner. Additionally we show that the optimal posting strategy is defined by the relation between suitably-defined term, rather than instantaneous, collateral rates, as would be the case in "full substitution'' situations that have been studied in the literature so far.

Keywords: OTC, CSA, Credit Support Annex, Collateral, Substitution rights, Sticky, HJB, dynamic programming

JEL Classification: C61, G13, G21

Suggested Citation

Piterbarg, Vladimir, Optimal Posting of Sticky Collateral (January 3, 2013). Available at SSRN: https://ssrn.com/abstract=2258339 or http://dx.doi.org/10.2139/ssrn.2258339

Vladimir Piterbarg (Contact Author)

NatWest Markets ( email )

250 Bishopsgate
London, EC2M 4AA
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
865
Abstract Views
3,726
rank
32,635
PlumX Metrics