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OTC Premia

Journal
Journal of Financial Economics
ISSN
0304-405X
Type
journal article
Date Issued
2020-04
Author(s)
Cenedese, Gino
Ranaldo, Angelo  
Vasios, Michalis
DOI
10.1016/j.jfineco.2019.09.010
Abstract
Using unique data at transaction and identity levels, we provide the first systematic study of interest rate swaps traded over the counter (OTC). We find substantial and persistent heterogeneity in derivative prices consistent with a pass-through of regulatory costs on to market prices via so-called valuation adjustments (XVA). A client pays a higher Price to buy interest rate protection from a dealer (i.e., the client pays a higher fixed rate) if
the contract is not cleared via a central counterparty. This OTC premium decreases by posting initial margins and with higher buyer's creditworthiness. OTC premia are absent for dealers suggesting bargaining power.
Language
English
Keywords
Interest rate swaps
Financial regulation
Central clearing
Over-the-counter market
Valuation adjustments
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Refereed
Yes
Publisher
Elsevier
Volume
136
Number
1
Start page
86
End page
105
Official URL
https://www.sciencedirect.com/science/article/pii/S0304405X19302296
URL
https://www.alexandria.unisg.ch/handle/20.500.14171/112256
Subject(s)

economics

finance

Division(s)

SoF - School of Finan...

Eprints ID
257400

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