Counterparty credit limits: An effective tool for mitigating counterparty risk?
Martin D. Gould,
Nikolaus Hautsch (),
Sam D. Howison and
Mason A. Porter
Papers from arXiv.org
A counterparty credit limit (CCL) is a limit imposed by a financial institution to cap its maximum possible exposure to a specified counterparty. Although CCLs are designed to help institutions mitigate counterparty risk by selective diversification of their exposures, their implementation restricts the liquidity that institutions can access in an otherwise centralized pool. We address the question of how this mechanism impacts trade prices and volatility, both empirically and via a new model of trading with CCLs. We find empirically that CCLs cause little impact on trade. However, our model highlights that in extreme situations, CCLs could serve to destabilize prices and thereby influence systemic risk.
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
http://arxiv.org/pdf/1709.08238 Latest version (application/pdf)
Working Paper: Counterparty credit limits: An effective tool for mitigating counterparty risk? (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1709.08238
Access Statistics for this paper
More papers in Papers from arXiv.org
Series data maintained by arXiv administrators ().