Martin D. Gould, Nikolaus Hautsch, Sam D. Howison, Mason A. Porter
arXiv 24 Sep 2017 · Finance — Trading · publishedApplied Mathematical Finance (2020) · 1 citations (OpenAlex)
arXiv:1709.08238 · PDF · DOI · OpenAlex · Extracted main text
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.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | T. Roukny, H. Bersini, H. Pirotte, G. Caldarelli, and S. Battiston (2013) Default cascades in complex networks: Topology and systemic risk | 1.000 | 6 | 3 | 100% |
| 2 | D. T. Luu, M. Napoletano, P. Barucca, and S. Battiston (2020) Collateral unchained: Rehypothecation networks, concentration and systemic effects | 1.000 | 5 | 4 | 100% |
| 3 | Bank for International Settlements (2010) Triennial Central Bank Survey: Report on global foreign exchange market activity in 2010 | 0.737 | 3 | 3 | 67% |
| 4 | R. M. May, S. A. Levin, and G. Sugihara (2008) Complex systems: Ecology for bankers | 0.644 | 2 | 2 | 100% |
| 5 | S. Weber and K. Weske (2017) The joint impact of bankruptcy costs, fire sales and cross-holdings on systemic risk in financial networks | 0.644 | 2 | 2 | 100% |
| 6 | M. D. Gould, M. A. Porter, and S. D. Howison (2017) Quasi-centralized limit order books self | 0.511 | 3 | 2 | 33% |
| 7 | L. Y. Liu, A. J. Patton, and K. Sheppard (2015) Does anything beat 5-minute RV? A comparison of realized measures across multiple asset classes | 0.511 | 2 | 2 | 50% |
| 8 | D. Brigo, M. Morini, and A. Pallavicini (2013) Counterparty Credit Risk, Collateral and Funding: With Pricing Cases for All Asset Classes | 0.511 | 2 | 1 | 100% |
| 9 | J. Gregory (2010) Counterparty Credit Risk: The New Challenge for Global Financial Markets | 0.511 | 2 | 1 | 100% |
| 10 | K. Anand, P. Gai, and M. Marsili (2012) Rollover risk, network structure and systemic financial crises | 0.405 | 1 | 1 | 100% |
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