Arbeitspapier
To share or not to share? Uncovered losses in a derivatives clearinghouse
This paper studies how the allocation of residual losses affects trading and welfare in a central counterparty. I compare loss sharing under two loss-allocation mechanisms - variation margin haircutting and cash calls - and study the privately and socially optimal degree of loss sharing. For losses allocated using variation margin haircuts, I find that trading volume is sensitive to the degree of loss sharing and to the risk sensitivity of skinin-the-game capital. By contrast, for cash calls, the degree of loss sharing does not affect trading volume but instead affects the chance that a cash call is honoured, which can constrain the recovery of funds. A welfare analysis characterizes the market outcome and compares it with the social optimum.
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Canada Staff Working Paper ; No. 2016-4
- Classification
-
Wirtschaft
General Financial Markets: Other
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- Subject
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Economic models
Payment clearing and settlement systems
- Event
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Geistige Schöpfung
- (who)
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Raykov, Radoslav S.
- Event
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Veröffentlichung
- (who)
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Bank of Canada
- (where)
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Ottawa
- (when)
-
2016
- DOI
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doi:10.34989/swp-2016-4
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Raykov, Radoslav S.
- Bank of Canada
Time of origin
- 2016
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