The emergence and future of central counterparties

Thorsten Koeppl and Cyril Monnet

No 10-30, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The authors explain why central counterparties (CCPs) emerged historically. With standardized contracts, it is optimal to insure counterparty risk by clearing those contracts through a CCP that uses novation and mutualization. As netting is not essential for these services, it does not explain why CCPs exist. In over-the-counter markets, as contracts are customized and not fungible, a CCP cannot fully guarantee contract performance. Still, a CCP can help: As bargaining leads to an inefficient allocation of default risk relative to the gains from customization, a transfer scheme is needed. A CCP can implement it by offering partial insurance for customized contracts.

Keywords: Risk management; Over-the-counter markets; Contracts (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-rmg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.philadelphiafed.org/-/media/frbp/asset ... ers/2010/wp10-30.pdf (application/pdf)

Related works:
Working Paper: The Emergence And Future Of Central Counterparties (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:10-30

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul ().