ANALYZING COLLATERAL REPO HAIRCUTS IN ASIAN COUNTRIES

Iman Gunadi (), Aryo Sasongko () and Dian Fitriarni Sari ()
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Iman Gunadi: Bank Indonesia
Aryo Sasongko: Bank Indonesia
Dian Fitriarni Sari: Bank Indonesia

Bulletin of Monetary Economics and Banking, 2022, vol. 25, issue 4, 495-530

Abstract: We study repo haircut determinants and develop the haircut calculation model. Collateral securities are government and corporate fixed-incomes, and we examine the determinants in Indonesia, Malaysia, Thailand, and Hong Kong. Implementing the Generalized AutoRegressive-Conditional Heteroskedasticity (GARCH) process, we find that the changes in long-memory returns, liquidity, and currency influence haircuts. Then, we introduce the haircut model using the historical and parametric Value-at-Risk (VaR), burdening the borrower as much as the α-percentile collateral loss. When borrowers default, lenders get the collaterals and haircuts to compensate for the collateral-price change.

Keywords: Repo analysis; Risk tolerance; Historical value-at-risk; Repo haircut (search for similar items in EconPapers)
JEL-codes: D81 E37 E44 G12 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:25:y:2022:i:4a:p:495-530

DOI: 10.21098/bemp.v25i4.2417

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