CoachA bid–offer reserve is the cost of closing a book’s net risk at the market’s bid or offer rather than at mid: the net exposure in each risk bucket times half the bid–offer spread of the instruments that would close it.
Ejemplos
Example 27.9 (The deferred profit)
Per 100 million of notes sold at par: margin 2.000 million; bid–offer reserve 0.621; deferred 1.054 (model 0.621, correlation 0.433); recognised at inception 0.325. After one year, with both indices at 95% and the note alive, the correlation trades within 0.47–0.53 and the note has two years left. The correlation reserve falls to 0.071 and the model reserve to 0.559: 0.424 million is released, 0.362 of it from the correlation. After two years, with the indices still at 95%, another 0.336 comes back, and the last 0.295 at maturity (Figure 27.4).