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What Factors Determine the Size of a Collateral Haircut?

Asset volatility, liquidity, issuer credit quality, and correlation with the derivative exposure; higher risk means larger haircuts.
Greeks.Live15.11.25

What Factors Determine the Size of a Collateral Haircut?

The size of a collateral haircut is determined by the volatility of the asset, its liquidity (how easily it can be sold without market impact), the credit quality of the issuer, and the correlation between the collateral asset and the underlying derivative exposure. Higher volatility and lower liquidity lead to larger haircuts.

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