OTC premia
Gino Cenedese (),
Angelo Ranaldo and
Michalis Vasios
Journal of Financial Economics, 2020, vol. 136, issue 1, 86-105
Abstract:
Using unique data at transaction and identity levels, we provide the first systematic study of interest rate swaps traded over the counter (OTC). We find substantial and persistent heterogeneity in derivative prices consistent with a pass-through of regulatory costs on to market prices via so-called valuation adjustments (XVA). A client pays a higher price to buy interest rate protection from a dealer (i.e., the client pays a higher fixed rate) if the contract is not cleared via a central counterparty. This OTC premium decreases by posting initial margins and with higher buyer’s creditworthiness. OTC premia are absent for dealers suggesting bargaining power.
Keywords: Interest rate swaps; Financial regulation; Central clearing; Over-the-counter market; Valuation adjustments (search for similar items in EconPapers)
JEL-codes: G12 G15 G18 G20 G28 (search for similar items in EconPapers)
Date: 2020
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http://www.sciencedirect.com/science/article/pii/S0304405X19302296
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Related works:
Working Paper: OTC Premia (2019) 
Working Paper: OTC premia (2018) 
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:136:y:2020:i:1:p:86-105
DOI: 10.1016/j.jfineco.2019.09.010
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