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The Calculation of Minimum Margin

Author

Listed:
  • Andrew Rudd

    (Barra, Berkeley, California)

  • Mark Schroeder

    (Cornell University)

Abstract

The calculation of margin for investor's option accounts is a complex and costly problem for brokerage houses. The existing procedures usually involve a heuristic requiring sequential computations. These are shown to be inefficient and suboptimal. A simple transportation formulation is presented which permits a direct computation of minimum margin and shows considerable savings when compared with existing heuristic procedures.

Suggested Citation

  • Andrew Rudd & Mark Schroeder, 1982. "The Calculation of Minimum Margin," Management Science, INFORMS, vol. 28(12), pages 1368-1379, December.
    • Handle: RePEc:inm:ormnsc:v:28:y:1982:i:12:p:1368-1379
    DOI: 10.1287/mnsc.28.12.1368
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    Citations

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    Cited by:

    1. CHEN, Yuanyuan & WU, Qi & LI, Duan, 2023. "Counter-cyclical Margins for Option Portfolios," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    2. John Board & Charles Sutcliffe & William T. Ziemba, 2003. "Applying Operations Research Techniques to Financial Markets," Interfaces, INFORMS, vol. 33(2), pages 12-24, April.
    3. Fiterman, Alexander E. & Timkovsky, Vadim G., 2001. "Basket problems in margin calculation: Modelling and algorithms," European Journal of Operational Research, Elsevier, vol. 129(1), pages 209-223, February.
    4. Mark Broadie & Jerome B. Detemple, 2004. "ANNIVERSARY ARTICLE: Option Pricing: Valuation Models and Applications," Management Science, INFORMS, vol. 50(9), pages 1145-1177, September.

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