Portfolio Collateralization

Collateral Optimization

Collateral Optimization enables the above-mentioned collateral requirements to be determined on a portfolio basis, which results in lower overall collateral requirements because of the presence of offsetting or partially offsetting trades. Instead of collateral being determined on a trade-by-trade basis, collateral required is based on the maximum loss in the user’s portfolio of Ithaca products as a whole.

Portfolio Collateral Optimization Process:

1. When a user places an order, the standard collateral per the collateral requirements is locked up.

2. After execution of the order in step 1), the Ithaca Collateral Optimization engine computes the required collateral for the user’s portfolio of Ithaca contracts and returns any excess collateral posted to the user. Collateral Optimization allows collateral requirements to be determined by the users’ portfolio maximum potential loss.

Portfolio Collateral Requirements

1. Calculate the quantity of ETH needed as collateral when the ETH price at expiry approaches infinity.

2. Calculate USDC collateral required when ETH price at expiry:

   1. At each portfolio strike

   2. At each strike +/- a small increment (to check for Payoff discontinuities)

   3. Zero

3. Compute 1) minus each of the amounts calculated in 2). If any of these amounts is negative, the amount of USDC collateral required is the minimum of the negative amounts.

4. The total collateral required is 1+3.