Template-type: ReDIF-Paper 1.0
Author-Name: Cyril Monnet
Author-Name-First: Cyril
Author-Name-Last: Monnet
Author-Name: Dr. Thomas Nellen
Author-Name-First: Thomas
Author-Name-Last: Nellen
Author-Person: pne256
Title: The Collateral Costs of Clearing
Abstract: In this working paper, we study the three generic clearing arrangements in the presence of two-sided limited commitment: simple bilateral clearing, segregated collateral clearing through a third party, and - most sophisticated of all - central counterparty (CCP) clearing. Clearing secures the settlement of obligations from over-the-counter (OTC) forward contracts that smooth the income of risk-averse agents. Clearing requires collateral to guarantee settlement; this is costly, as it reduces income from investment. While welfare is greater under more sophisticated clearing arrangements, we find that these are also more demanding in terms of collateral.
Length: 49 pages
Creation-Date: 2014
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2014/working_paper_2014_04
File-Format: text/html
Number: 2014-04
Classification-JEL: G13, G14, G18, G2, G28, D53, D82
Keywords: clearing, central counterparty, segregation, novation, mutualization
Handle: RePEc:snb:snbwpa:2014-04