第二章国际汇率风险管理.pptVIP

B. Exchange-traded vs OTC options The OTC currency options market consists of two sectors: The first is a retail market composed of nonbank customers who purchase from banks what amounts to customized insurance against adverse exchange rate movements. These customers prefer the OTC market because of their ability to obtain terms that fit their needs. The second is a wholesale market among commercial banks, investment banks, and specialized trading firms. This market has options that are larger in contract size than elsewhere, and typically European-style. OTC Option Markets They are customized unlike the standardized exchange-traded options. The exchanges can be viewed as the discount stores (“one-size-fits all” stores). The international banks are boutiques offering tailor-made products to customers. Premiums on OTC options are higher than the comparable exchange-traded options. This difference primarily reflects the customized nature of the OTC options; OTC Options Typically European style. No flexibility of the exchange-traded American options. No secondary market, the distinction between American-style and the European-style is significant; A desired maturity less than the standard maturity for an exchange-traded American option can be easily accommodated, although the transaction cost on such a contract may not be justifiable. Option Markets Exchanges require margins for writers. In most exchanges, options buyers have to pay the premium up front. LIFFE (London International Financial Futures Exchange) does not require up front premium on options; Option buyers have to set up a margin account based on the delta factor; and they receive profits on a daily basis without any need for liquidating the position. LIFFE also allows automatic offset of margins on a combination of options. This feature is also common in the U.S. option exchange for trading different option strategies. Option Markets The collateral requirements on OTC options cannot be generalized