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where the remuneration processes β1 and β2 determine the interest rates paid or received by the hedger on collateral amounts C+ and C−, respectively.
The financial practice may require to hold the collateral amounts in segregated margin accounts, so that the hedger, when he is a collateral taker, cannot make use of the collateral amount for trading.
This fractionated approach allows nearby normal tissues, which receive collateral amounts of radiation, to undergo cellular and DNA damage repair, thus minimizing damage to surrounding critical structures.
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If there is no default before T, the collateral taker returns the collateral amount to the collateral provider.
The (mathbb {G} -adapted collateral amount process C satisfies C T =0.
For instance, in the case of the rehypothecated cash collateral (see Section 2.7.1), the hedger's wealth at time t should be computed by subtracting the collateral amount C t from the portfolio's value.
In market practice, the total collateral amount is usually represented by two components, which are termed the initial margin (also known as the independent amount) and the variation margin.
First, the term C τ is due to the fact that the legal title to the collateral amount comes into force only at the time of the first default.
For example, if (C^_{t}>0) then the legal owner of the amount (C^_{t}) at time t could be either the hedger or the counterparty (depending on the legal covenants of the collateral agreement) but the hedger, as a collateral taker, is allowed to use the collateral amount for his trading purposes.
It accounts for the legal value Q τ of the contract, plus the bullet dividend ΔA τ to be received/paid at time τ, less the collateral amount C τ since it is already held by either the hedger (if C τ >0) or the counterparty (if C τ <0).
Defenders of the bank argue that its liberal collateral policy amounts to a form of quantitative easing, because it allows institutions to convert devalued paper into cash that can be lent to customers.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com