Biais, Bruno, Heider, Florian and Hoerova, Marie (2014) Risk-sharing or risk-taking? An incentive theory of counterparty risk, clearing and margins. TSE Working Paper, n. 14-522, Toulouse

Warning
There is a more recent version of this item available.
[thumbnail of wp_tse_522.pdf]
Preview
Text
Download (575kB) | Preview

Abstract

Derivatives activity, motivated by risk-sharing, can breed risk taking. Bad news about the risk of the asset underlying the derivative increases the expected liability of a protection seller and undermines her risk prevention incentives. This limits risk-sharing, and may create endogenous counterparty risk and contagion from news about the hedged risk to the balance sheet of protection sellers. Margin calls after bad news can improve protection sellers incentives and enhance the ability to share risk. Central clearing can provide insurance against counterparty risk but must be designed to preserve risk-prevention incentives.

Item Type: Monograph (Working Paper)
Language: English
Date: June 2014
Place of Publication: Toulouse
Uncontrolled Keywords: Hedging, Insurance, Derivatives, Moral hazard, Risk management, Counterparty risk, Contagion, Central clearing, Margin requirements
JEL Classification: D82 - Asymmetric and Private Information
G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G22 - Insurance; Insurance Companies
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse), TSM Research (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 16 Mar 2015 14:49
Last Modified: 02 Apr 2021 15:49
OAI Identifier: oai:tse-fr.eu:28439
URI: https://publications.ut-capitole.fr/id/eprint/16560

Available Versions of this Item

View Item

Downloads

Downloads per month over past year