In this article, we use the slash as a punctuation mark for separating mutually exclusive alternatives but not as a symbol of a division operation.
Margining option portfolios by network flows†
Article first published online: 10 OCT 2011
Copyright © 2011 Wiley Periodicals, Inc.
Volume 60, Issue 2, pages 120–131, September 2012
How to Cite
Matsypura, D. and Timkovsky, V. G. (2012), Margining option portfolios by network flows. Networks, 60: 120–131. doi: 10.1002/net.20465
- Issue published online: 1 AUG 2012
- Article first published online: 10 OCT 2011
- Manuscript Accepted: JUL 2011
- Manuscript Received: OCT 2010
As shown in , 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 uses spreads with three and four legs. A polynomial-time 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 network-flow algorithm for this extension and present a computational study that demonstrates high efficiency of the proposed algorithm in margining practice. © 2011 Wiley Periodicals, Inc. NETWORKS, 2012