OTC Premia

Item Type Conference or Workshop Item (Paper)
Abstract Using trade repository data at transaction and ID levels, we provide the first systematic study of interest rate swaps traded over the counter in the new regulatory regime. We find substantial and persistent heterogeneity in derivatives prices consistent with a pass-through of regulatory costs on to market prices via the so-called valuation adjustments (XVA). Specifically, a client pays a higher price to buy interest-rate protection from a dealer (ie, the client pays a higher fixed rate) if the contract is not cleared via a central counterparty. This OTC premium decreases by posting initial margin and with higher buyer's creditworthiness. Also, OTC premia are absent for dealers suggesting dealers' bargaining power.
Authors Cenedese, Gino; Ranaldo, Angelo & Vasios, Michalis
Language English
Keywords Interest rate swaps, financial regulation, central celaring, over-the-counter market, valuation adjustments
Subjects finance
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Date 6 November 2018
Event Title Annual Central Bank Conference on Microstructure of Financial Markets
Event Location Hong Kong Institute for Monetary Research (HKIMR) of the Hong Kong Monetary Authority
Event Dates 5-6 November 2018
Depositing User Christina Ihasz
Date Deposited 29 Nov 2018 10:15
Last Modified 24 Feb 2022 01:25
URI: https://www.alexandria.unisg.ch/publications/255890

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Citation

Cenedese, Gino; Ranaldo, Angelo & Vasios, Michalis: OTC Premia. 2018. - Annual Central Bank Conference on Microstructure of Financial Markets. - Hong Kong Institute for Monetary Research (HKIMR) of the Hong Kong Monetary Authority.

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https://www.alexandria.unisg.ch/id/eprint/255890
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