Differential rates, differential prices

Fabio Mercurio
08 Jan 2014

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Collateralisation has a direct impact on the valuation of derivatives. They become similar in spirit to futures, where marking-to-market and settlement occurs daily and not just at the contract’s maturity. Derivatives are marked-to-market, and may have collateral calls, daily. Therefore, classic risk-neutral pricing needs to be revised to take into account collateral features and posting frequency. The move to put a greater proportion of over-the-counter derivatives on to central clearing makes

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