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Islacanela
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Posts: 10
Joined: May 1st, 2015, 2:55 pm

LME options margining

June 30th, 2020, 8:53 am

Dear All,



Just a quick question on LME options on futures.

Are LME options on (base metals) futures equity-style margined or futures-style margined?
I think they are futures-style margined, however I’m struggling to find a clear reference confirming this, even on the LME website.
Thanks.

 
User avatar
Islacanela
Topic Author
Posts: 10
Joined: May 1st, 2015, 2:55 pm

Re: LME options margining

July 23rd, 2020, 2:25 pm

Ok, I finally figured that the LME options margining is equity-style as you pay the premium upfront.


However, is there a reference showing that the early exercise for the LME options is not optimal and thus the LME options can be treated as European? (the LME options are indeed treated as European according to https://www.lme.com/en-GB/Trading/Contr ... 76-Formula)

For futures-style margining the reference is for example 
Derming Lieu. Option Pricing with Futures_Style Margining 1990

However, what would the reference for equity-style margining that the early exercise for American options is not optimal?