Explain the Role of Collateral Management in Institutional Derivatives Trading

Collateral management involves the monitoring, valuation, and transfer of assets pledged by counterparties to secure their obligations under a derivatives contract. It ensures that if one party defaults, the other party has recourse to the collateral to cover their loss.

This process is essential for mitigating credit risk. Effective collateral management requires accurate mark-to-market valuation and timely margin calls.