Counterparty credit limits: the impact of a risk-mitigation measure on everyday trading
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 i...
| Main Authors: | , , , |
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| Format: | Journal article |
| Language: | English |
| Published: |
Taylor and Francis
2021
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| _version_ | 1797108351167889408 |
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| author | Gould, M Hautsch, N Howison, S Porter, M |
| author_facet | Gould, M Hautsch, N Howison, S Porter, M |
| author_sort | Gould, M |
| collection | OXFORD |
| description | 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. |
| first_indexed | 2024-03-07T07:26:14Z |
| format | Journal article |
| id | oxford-uuid:d18564bc-3c9d-460b-aac2-bbd3fe55edfe |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T07:26:14Z |
| publishDate | 2021 |
| publisher | Taylor and Francis |
| record_format | dspace |
| spelling | oxford-uuid:d18564bc-3c9d-460b-aac2-bbd3fe55edfe2022-11-18T09:04:25ZCounterparty credit limits: the impact of a risk-mitigation measure on everyday tradingJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:d18564bc-3c9d-460b-aac2-bbd3fe55edfeEnglishSymplectic ElementsTaylor and Francis2021Gould, MHautsch, NHowison, SPorter, MA 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. |
| spellingShingle | Gould, M Hautsch, N Howison, S Porter, M Counterparty credit limits: the impact of a risk-mitigation measure on everyday trading |
| title | Counterparty credit limits: the impact of a risk-mitigation measure on everyday trading |
| title_full | Counterparty credit limits: the impact of a risk-mitigation measure on everyday trading |
| title_fullStr | Counterparty credit limits: the impact of a risk-mitigation measure on everyday trading |
| title_full_unstemmed | Counterparty credit limits: the impact of a risk-mitigation measure on everyday trading |
| title_short | Counterparty credit limits: the impact of a risk-mitigation measure on everyday trading |
| title_sort | counterparty credit limits the impact of a risk mitigation measure on everyday trading |
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