Gino Cenedese (),
Angelo Ranaldo () and
No 1818, Working Papers on Finance from University of St. Gallen, School of Finance
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)
Pages: 56 pages
Date: 2018-08, Revised 2019-05
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Forthcoming in Journal of Financial Economics
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Journal Article: OTC premia (2020)
Working Paper: OTC premia (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2018:18
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