What is the relation between central clearing and counterparty risk? Intuitively, it seems clear that a central clearing counterparty (CCP) improves the netting mechanism. With bilateral clearing, two trading partners can only net with one another. With central clearing, the… Continue Reading →
Why the discussion about central clearing of credit default swap (CDS) contracts? For one thing, central clearing increases transparency. Once transactions have to go through a central clearing counterparty (CCP), the regulator can simply monitor the CCP to get an… Continue Reading →
Why do investors engage in credit default swap (CDS) trading? At first glance, you would assume that the main motive is to obtain protection against default risk. But of course, a CDS is a bilateral contract: for every protection buyer… Continue Reading →
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