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28 March 2009 2,556 views 3 Comments

Hi everyone

How do we recognise a put/call option in the balance using the fair value method and not hedge accounting.

Thanks and regards

Catherine

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3 Comments »

  • admin (author) said:

    Message from Alexandre

    The initial value to be booked in the BS is the mark-to-market (based on black and scholes model if price not available in the street) whatever the way you pay the premium (up front or running). At the following closing date, you shall recognise the new mark-to-market in front of the BS. The difference between the two M2M is booked in PnL. (If the initial premium is not payed up front, a receivable has to be recognised).

    Alexandre

    # 28 March 2009 at 10:44 am
  • admin (author) said:

    Message from Catherine

    Thank you for your help. If my portfolio valuation shows negative value for the put options at year end. How do I recognise it in the financial statements?

    Thanks and regards

    Catherine

    # 31 March 2009 at 9:45 am
  • admin (author) said:

    Message from Jeroen

    A negative value implies that the option is out of the money. You would therefore not exercise it at maturity. The value of an option (at least at the buyer’s side) can in my view not become less than zero. Therefore the option should be written off to nil (via P&L).

    # 1 April 2009 at 10:15 am

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