Central to the ongoing debate on default resource adequacy are the incentives provided by the clearinghouse waterfall structure. We show that clearinghouse equity and member default funds play a complementary role to initial margins: they incentivize safe members to participate rather than...

We develop a tractable continuous time model of multi-firm capital dynamics in a centrally cleared market. Our framework jointly models the strategic interactions between business operations of firms and their trading activities. We show that the endogenous allocation of firm capital between...

We model the decision problem faced by a profit-maximizing clearinghouse, which sets fee and margin requirements for heterogeneous traders who may default. We capture the main tradeoffs underpinning the clearinghouse's choices: higher fee and better default protection come at the cost of...