Jean-Sébastien Fontaine - Bank Publications
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November 15, 2012
Access, Competition and Risk in Centrally Cleared Markets
Central counterparties can make over-the-counter markets more resilient and reduce systemic risk by mitigating and managing counterparty credit risk. These benefits are maximized when access to central counterparties is available to a wide range of market participants. In an over-the-counter market, there is an important trade-off between risk and competition. A model of an over-the-counter market shows how risk and competition could be influenced by the incentives of market participants as they move to central clearing. In a centrally cleared market, there may be less risk when participation is high. This helps to explain why regulators have put in place requirements for fair, open and risk-based access criteria.
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Forecasting Inflation and the Inflation Risk Premiums Using Nominal Yields
We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity. -
When Lower Risk Increases Profit: Competition and Control of a Central Counterparty
We model the behavior of dealers in Over-the-Counter (OTC) derivatives markets where a small number of dealers trade with a continuum of heterogeneous clients (hedgers). Imperfect competition and (endogenous) default induce a familiar trade-off between competition and risk. -
Risk Premium, Variance Premium and the Maturity Structure of Uncertainty
Expected returns vary when investors face time-varying investment opportunities. Long-run risk models (Bansal and Yaron 2004) and no-arbitrage affine models (Duffie, Pan, and Singleton 2000) emphasize sources of risk that are not observable to the econometrician.