G19 - Other
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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. -
Optimal Margining and Margin Relief in Centrally Cleared Derivatives Markets
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. -
Identifying Asymmetric Comovements of International Stock Market Returns
Based on a new approach for measuring the comovements between stock market returns, we provide a nonparametric test for asymmetric comovements in the sense that stock market downturns will lead to stronger comovements than market upturns. -
Pocket Banks and Out-of-Pocket Losses: Links between Corruption and Contagion
The author describes a model with a corrupt banking system, in which bankers knowingly lend at market interest rates to back projects riskier than the market rate indicates.