 NUOR SEMINAR
 Speaker: Dmytro Matsypura, The University of Sydney
 Title: Margining Option Portfolios by Network Flows
 Location: Room V129, Mathematics Building (Callaghan Campus) The University of Newcastle
 Time and Date: 2:00 pm, Tue, 24^{th} Jan 2012
 Abstract:
Having been constructed as trading strategies, option spreads are
also used in margin calculations for offsetting positions in
options. All option spreads that appear in trading and margining
practice have two, three or four legs. As shown in Rudd and
Schroeder (Management Sci, 1982), the problem of margining option
portfolios where option spreads with two legs are used for
offsetting can be solved in polynomial time by network flow
algorithms. However, spreads with only two legs do not provide
sufficient accuracy in measuring risk. Therefore, margining practice
also employs spreads with three and four legs. A polynomialtime
solution to the extension of the problem where option spreads with
three and four legs are also used for offsetting is not known. We
propose a heuristic networkflow algorithm for this extension and
present a computational study that demonstrates high efficiency of
the proposed algorithm in margining practice.
 [Permanent link]
