Finance and Risk Engineering and the Topfer Chair …

collateral to support arbitrage trades. We show that with volatile asset demands, arbitrage becomes risky. With information … frictions, a looser collateral policy might render the economy more vulnerable to extremely large demand shocks, while a tighter … collateral constraint helps maintain the stability at the cost of market liquidity supply …

; Collateral ; Risk Management …

such risk? When counterparty risk is not observable, I show that central clearing leads to higher collateral requirements … forgo incentives for transactions that use collateral only for insurance. With collusion about risk taking, a CCP needs to … charge collateral in line with the worst counterparty quality to control risk taking. Requiring more collateral reduces …

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 considering this trade-off, participants would choose central clearing if …