Author
Gould, M
Hautsch, N
Howison, S
Porter, M
Journal title
Applied Mathematical Finance
DOI
10.1080/1350486X.2021.1893770
Issue
6
Volume
27
Last updated
2022-12-20T06:22:42.54+00:00
Page
520-548
Abstract
A counterparty credit limit (CCL) is a limit that is imposed by a financial institution
to cap its maximum possible exposure to a specified counterparty. CCLs help institutions
to mitigate counterparty credit risk via selective diversification of their exposures. In
this paper, we analyze how CCLs impact the prices that institutions pay for their trades
during everyday trading. We study a high-quality data set from a large electronic trading
platform in the foreign exchange spot market, which enables institutions to apply CCLs.
We find empirically that CCLs had little impact on the vast majority of trades in this
data. We also study the impact of CCLs using a new model of trading. By simulating
our model with different underlying CCL networks, we highlight that CCLs can have a
major impact in some situations.
Symplectic ID
1163720
Favourite
Off
Publication type
Journal Article
Publication date
18 May 2021
Please contact us with feedback and comments about this page. Created on 27 Feb 2021 - 18:50.