Radoslav Raykov is a senior economist in the Financial Stability Department at the Bank of Canada. His research focuses on the theory of risk and uncertainty with applications to central counterparties, insurance companies and firms with uncertain costs. Prior to joining the Bank of Canada, he worked at the Federal Reserve Bank of Boston and taught at Harvard University. He holds a B.A. from Harvard University a Ph.D. in Economics from Boston College.
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.
A major policy challenge posed by derivatives clearinghouses is that their collateral requirements can rise sharply in times of stress, reducing market liquidity and further exacerbating downturns.
Classical oligopoly models predict that firms differentiate vertically as a way of softening price competition, but some metrics suggest very little quality differentiation in the U.S. auto insurance market.