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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
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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 |
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- Risk-sharing or risk-taking? An incentive theory of counterparty risk, clearing and margins. (deposited 16 Mar 2015 14:49) [Currently Displayed]
