Markets Evolution After the Credit Crunch

Marco Bianchetti and Mattia Carlicchi

MPRA Paper from University Library of Munich, Germany

Abstract: We review the main changes in the interbank market after the financial crisis started in August 2007. In particular, we focus on the fixed income market and we analyse the most relevant empirical evidences regarding the divergence of the existing basis between interbank rates with different tenor, such as Libor and OIS. We also discuss a qualitative explanation of these effects based on the consideration of credit and liquidity variables. Then, we focus our attention on the diffusion of collateral agreements among OTC derivatives market counterparties, and on the consequent change of paradigm for pricing derivatives. We illustrate the main qualitative features of the new market practice, called CSA discounting, and we point out the most relevant issues for market players associated to its adoption.

Keywords: crisis; liquidity; credit; counterparty; risk; fixed income; Libor; Euribor; Eonia; OIS – Libor basis; yield curve; forward curve; discount curve; single curve; multiple curve; collateral; CSA discounting; no arbitrage; pricing; interest rate derivatives; FRA; swap; OIS; basis swap; forward rate; CDS spread; ECB monetary policy; ISDA (search for similar items in EconPapers)
JEL-codes: E43 G12 G13 (search for similar items in EconPapers)
Date: 2012-12-19
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:44023

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