Working paper: Variation margin in presence of trade cash flows

A new working paper by Marc Henrard is now available on SSRN. The title of the paper is

Variation margin in presence of trade cash flows

With the generalisation of Variation Margin (VM) collateral, the derivative world is not driven anymore by discrete cash flows but by continuous dividend. Due to practical constraints, the VM is paid with a one day delay. This delay reduces significantly the effectiveness of the margin process as credit risk exposure reduction around the trade cash flow payments. This note presents an efficient and simple approach to bring back the effectiveness of the VM process even around trade flows dates. The approach is based on the usage of a forward valuation in the VM computation process.

The paper is available on SSRN: https://ssrn.com/abstract=3154329

New working paper: overnight futures

A new working paper by Marc Henrard is now available on SSRN. The title of the paper is

Overnight Futures: Convexity Adjustment

The paper describes the pricing, including the convexity adjustment, of the a new overnight benchmark based futures in the collateral framework using a Gaussian HJM-like model. This new type of futures will soon start trading on CME for USD futures on SOFR and on CurveGlobal for GBP futures on SONIA.

The paper is available on SSRN at https://ssrn.com/abstract=3134346