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Credit Loss

T

Tomahawk

Member
I am referring to the ActEd Notes Chapter 15 2.2
One of the conditions for credit loss is that the derivative has positive value. This is, with trivial exceptions, always true for options. Why then do the notes say that if the option is out of the money that there is no credit loss?
 
I think what it means here is that, if the option is out-of-the-money, then there is no CURRENT credit exposure, since nobody owes you any money at the moment. But you are right that it could move into the money later, so that there is a POTENTIAL credit risk.
 
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