TY  - UNPD
A1  - Gould, Martin
A1  - Hautsch, Nikolaus
A1  - Howison, Sam D.
A1  - Porter, Mason A.
T1  - Counterparty credit limits : an effective tool for mitigating counterparty risk?
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 581
N2  - A counterparty credit limit (CCL) is a limit imposed by a financial institution to cap its maximum possible exposure to a specified counterparty. Although CCLs are designed to help institutions mitigate counterparty risk by selective diversification of their exposures, their implementation restricts the liquidity that institutions can access in an otherwise centralized pool. We address the question of how this mechanism impacts trade prices and volatility, both empirically and via a new model of trading with CCLs. We find empirically that CCLs cause little impact on trade. However, our model highlights that in extreme situations, CCLs could serve to destabilize prices and thereby influence systemic risk.
T3  - CFS working paper series - 581 
KW  - Counterparty Credit Limits
KW  - Counterparty Risk
KW  - Price Formation
KW  - Market Design
KW  - Systemic Risk
Y1  - 2017
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/43867
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-438673
UR  - https://ssrn.com/abstract=3043112
IS  - September 26, 2017
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -