Beginning in the 1990s, the growth of mortgage lending was associated with the growth of a new set of mortgage-backed securities. We study the evolution of initial mortgage rates as a function of characteristics of both the loan and the borrower. We find that credit risk historically was priced...

This paper studies the optimal clearing arrangement for bilateral financial contracts in which an assessment of counterparty credit risk is crucial for efficiency. The economy is populated by borrowers and lenders. Borrowers are subject to limited commitment and hold private information about...

Bilateral financial contracts typically require an assessment of counterparty risk. Central clearing of these financial contracts allows market participants to mutualize their counterparty risk, but this insurance may weaken incentives to acquire and to reveal information about such risk. When...