Netting agreements and the credit exposures of OTC derivatives portfolios

Darryll Hendricks

Quarterly Review, 1994, vol. 19, issue Spr, 7-18

Abstract: The rapid expansion of the over-the-counter derivative market has prompted dealers to lessen their credit risk exposure by adopting bilateral closeout netting agreements. This article shows that netting agreements will not only reduce current credit exposure but under certain circumstances will also dampen fluctuations in the volatility of dealers' exposures. Thus, netting agreements may limit potential credit exposure, or the possibility that credit exposure will increase over a fixed time horizon.

Keywords: Derivative; securities (search for similar items in EconPapers)
Date: 1994
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