This protective (married) put is synthetic because unlike a real put, which is a fungible contract that can change hands, it merely replicates the state where an option buyer gains the right to sell, while an option underwriter becomes obligated to satisfy said right if it’s exercised. It’s worth pointing out that Debtors could achieve similar protection by buying and holding real puts on their collateral with a defined strike and expiry. However, this adds the chore of choosing those parameters, especially having to predict the liquidity of different strikes, and then deciding to keep or sell the option while it’s out-of-the-money throughout its lifetime.
The extent of a Debtor's over-collateralisation relative to their debt represents the moneyness of their synthetic put (pricing the premiums cheaper the higher the collateralisation). The Debtor’s collateral is the strike asset, the strike price is up to 10% less than its value, and the time value of the protection varies based on its volatility. Protection fees will increase in proportion to collateral price volatility, and inversely proportional to moneyness levels both systemically and individually.
By acting together as a single seller the Creditors are a unified underwriter of risk and counterparty for all borrowing, serving to make a relatively homogeneous options market out of what would otherwise be extremely fragmented and heterogeneous. Each synthetic put on individual Pledges is bound together into a pool, and protection is sold on notional amounts of collateral in the pool, yielding Creditors an aggregated premium on a book of short positions in those options.