The value of a vast array of financial assets are functions of rates or prices determined in OTC, interbank, or other off-exchange markets. In order to price such derivative assets, underlying rate and price indexes are routinely sampled and estimated. To guard against misreporting, whether...

Firms active in OTC derivative markets increasingly use margin agreements to reduce counterparty credit risk. Making several simplifying assumptions, I use both a quasi- analytic approach and a simulation approach to quantify how margining reduces counterparty credit exposure. Margining reduces...

Correlations are crucial for pricing and hedging derivatives whose payoff depends on more than one asset. Typically, correlations computed separately for ordinary and stressful market conditions differ considerably, a pattern widely termed "correlation breakdown." As a result, risk managers...

We present a model in which the addition of an option market leads to sunspot equilibria in an economy which has no sunspot equilibrium before the market is introduced. This phenomenon occurs because the payoff of an option contract is contingent upon market prices, and while prices are taken as...