Sensitivities and Hedging of the Collateral Choice Option
The collateral choice option allows a collateral-posting party the opportunity to change the type of security in which the collateral is deposited. Due to non-zero collateral basis spreads, this optionality significantly impacts asset valuation.
https://wsc.project.cwi.nl/abcxva/overview-research-programme/publications/esr5-felix-wolf/felix-wolf-2207-10373.pdf/view
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Sensitivities and Hedging of the Collateral Choice Option
The collateral choice option allows a collateral-posting party the opportunity to change the type of security in which the collateral is deposited. Due to non-zero collateral basis spreads, this optionality significantly impacts asset valuation.