English, Article, Journal or magazine article edition: Central Counterparties Thorsten Koeppl; Cyril Monnet

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Bookmark: http://trove.nla.gov.au/version/30572
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Central Counterparties
Author
  • Thorsten Koeppl
  • Cyril Monnet
Physical Description
  • preprint
Notes
  • Central counterparties (CCPs) have increasingly become a cornerstone of financial markets infrastructure. We present a model where CCPs are necessary to implement efficient trade when trades are time-critical, liquidity is limited and there is limited enforcement of trades. We then show that -- when collateral is sufficient to avoid default -- profit-maximizing CCPs ``overcollateralize'' trades relative to user-oriented CCPs and, hence, are less efficient. However, when collateral is not covering all default exposure, user-oriented CCPs avoid default, but allow for less trade, while profit-maximizing CCPs yield a higher volume of trade despite allowing for some default. In such a situation, profit-maximzing CCPs can be efficient, provided overall default costs are not too high
  • Central Counterparty; Governance; Default; Collateral
  • RePEc:red:sed006:513
Language
  • English
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