Regulatory-Compliant Derivatives Pricing is Not Risk-Neutral

Chris Kenyon and Andrew Green

Papers from arXiv.org

Abstract: Regulations impose idiosyncratic capital and funding costs for holding derivatives. Capital requirements are costly because derivatives desks are risky businesses; funding is costly in part because regulations increase the minimum funding tenor. Idiosyncratic costs mean no single measure makes derivatives martingales for all market participants. Hence Regulatory-compliant pricing is not risk-neutral. This has implications for exit prices and mark-to-market.

New Economics Papers: this item is included in nep-ban, nep-fmk and nep-rmg
Date: 2013-11, Revised 2014-08
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://arxiv.org/pdf/1311.0118 Latest version (application/pdf)

Related works:
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:arx:papers:1311.0118

Access Statistics for this paper

More papers in Papers from arXiv.org
Series data maintained by arXiv administrators ().