
handle: 10419/153914
The paper studies the optimal design of clearing systems. The paper analyzes how counterparty risk should be allocated, whether traders should be fully insured against that risk, and how moral hazard affects the optimal allocation of risk. The main advantage of centralized clearing, as opposed to no or decentralized clearing, is the mutualization of risk. While mutualization fully insures idiosyncratic risk, it cannot provide insurance against aggregate risk. When the latter is significant, it is efficient that protection buyers exert effort to find robust counterparties, whose low default risk makes it possible for the clearing system to withstand aggregate shocks. When this effort is unobservable, incentive compatibility requires that protection buyers retain some exposure to counterparty risk even with centralized clearing.
G28, Moral Hazard, 330, Counterparty risk, Risk-sharing, ddc:330, mutualization, counterparty risk, central clearing counterparty, "counterparty risk", clearing systems, D82, aggregate and idiosyncratic risk, central clearing counterparty, counterparty risk, moral hazard, mutualization, optimal contracting, risk-sharing, optimal contracting, G22, [SHS.GESTION] Humanities and Social Sciences/Business administration, "clearing systems", B- ECONOMIE ET FINANCE, aggregate and idiosyncratic risk
G28, Moral Hazard, 330, Counterparty risk, Risk-sharing, ddc:330, mutualization, counterparty risk, central clearing counterparty, "counterparty risk", clearing systems, D82, aggregate and idiosyncratic risk, central clearing counterparty, counterparty risk, moral hazard, mutualization, optimal contracting, risk-sharing, optimal contracting, G22, [SHS.GESTION] Humanities and Social Sciences/Business administration, "clearing systems", B- ECONOMIE ET FINANCE, aggregate and idiosyncratic risk
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