# Collateral allocation

All open positions owned by an address (written or held) are taken into account for allocating collateral regardless of the underlying, option type and maturity, according to the following formula implemented in solidity code:

![](/files/-MXtAyxUBPK7FG0q52cJ)

A short position "i" increases required collateral proportionally to the written volume taking into account the period adjusted on-chain historical underlying price volatility and the option intrinsic value ("υ"). A long position "j" decreases required collateral proportionally to the held volume taking into account the option intrinsic value alone. The kupper constant plays a role in the liquidation process and serves as an additional security factor protecting against the inherent uncertainty of the underlying price volatility (i.e. the volatility-of-volatility risk).

Call the `calcCollateral` function to perform this calculation and obtain the collateral requirements for a specific address:

```
uint collateral = exchange.calcCollateral(owner);
```

The difference between the address balance and its collateral requirements is the address surplus. The `calcSurplus` function is conveniently provided to perform this calculation:

```
uint surplus = exchange.calcSurplus(owner);
```

The surplus effectively represents the amount of funds available for writing new options and for covering required collateral variations due to underlying price jumps. If it returns zero it means that the specified address is lacking enough collateral and at risk of having its positions liquidated.


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://docs.defioptions.org/coding-reference/collateral-allocation.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.