Counterparty Risk in the Over-The-Counter Derivatives Market / Manmohan Singh, Miguel Segoviano.

Format:

Book

Government document

Author/Creator:

Singh, Manmohan.

Contributor:

Segoviano, Miguel A.

Series:

IMF Working Papers; Working Paper ; No. 2008/258

IMF working paper ; WP/08/258

IMF Working Papers

Language:

English

Subjects (All):

Derivative securities--Econometric models.

Derivative securities.

Over-the-counter markets--Econometric models.

Over-the-counter markets.

Risk--Econometric models.

Risk.

Physical Description:

1 online resource (21 pages) : illustrations (some color), tables.

Edition:

1st ed.

Place of Publication:

Washington, D.C. : International Monetary Fund, 2008.

Language Note:

English

Summary:

The financial market turmoil of recent months has highlighted the importance of counterparty risk. Here, we discuss counterparty risk that may stem from the OTC derivatives markets and attempt to assess the scope of potential cascade effects. This risk is measured by losses to the financial system that may result via the OTC derivative contracts from the default of one or more banks or primary broker-dealers. We then stress the importance of "netting" within the OTC derivative contracts. Our methodology shows that, even using data from before the worsening of the crisis in late Summer 2008, the potential cascade effects could be very substantial. We summarize our results in the context of the stability of the banking system and provide some policy measures that could be usefully considered by the regulators in their discussions of current issues.

Contents:

Intro

Contents

I. Introduction

II. Definitions and Methodology

A. Counterparty Risk

B. Exposure of the Financial System to Counterparty Risk

C. Distress Dependence in the Financial System and Conditional Probability of Distress of Specific Financial Institutions

D. Loss Scenarios

III. Counterparty Risk: Empirical Estimation

A. Counterparty Risk Exposure

B. Conditional Probability of Distress of Financial Institutions

IV. Conclusion and Policy Implications

References

Tables

1. Default Dependence Matrix

2. Distress Dependence Matrix

3. Losses Under Alternative Scenarios

4. Extrapolated Total Losses Under Alternative Scenarios

Figures

1. Global OTC Derivatives as of December 2007

2. Global OTC Derivatives Market as of December 2007

3. The FinancialSystem's Multivariate Density

4. Probability that at Least one Financial Institution Fails to Deliver

5. Probability that Exactly one Financial Institution Fails to Deliver

6. OTC Derivatives: Notional Amounts as of end of March 2008

7. OTC Derivatives: Counterparty Liabilities as of end of March 2008

8. Probabilities of Distress of Financial Institutions Included in this Study

9. Fed's Balance Sheet as of April 23, 2008

Box

1. Distress Dependence.

Notes:

Bibliographic Level Mode of Issuance: Monograph

Includes bibliographical references.

Description based on online resource; title from PDF title page (ebrary, viewed February 27, 2014).

ISBN:

9786612842092

9781462348725

1462348726

9781451871166

1451871163

9781452730912

1452730911

9781282842090

1282842099

OCLC:

762656384