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Markets Evolution After the Credit Crunch

  • Bianchetti, Marco
  • Carlicchi, Mattia

We review the main changes in the interbank market after the financial crisis started in August 2007. In particular, we focus on the fixed income market and we analyse the most relevant empirical evidences regarding the divergence of the existing basis between interbank rates with different tenor, such as Libor and OIS. We also discuss a qualitative explanation of these effects based on the consideration of credit and liquidity variables. Then, we focus our attention on the diffusion of collateral agreements among OTC derivatives market counterparties, and on the consequent change of paradigm for pricing derivatives. We illustrate the main qualitative features of the new market practice, called CSA discounting, and we point out the most relevant issues for market players associated to its adoption.

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File URL: http://mpra.ub.uni-muenchen.de/44023/1/MPRA_paper_44023.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44023.

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Date of creation: 19 Dec 2012
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Handle: RePEc:pra:mprapa:44023
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  1. Fries, Christian P., 2010. "Discounting Revisited. Valuations under Funding Costs, Counterparty Risk and Collateralization," MPRA Paper 23082, University Library of Munich, Germany, revised 30 May 2010.
  2. Fabio Mercurio, 2010. "Modern Libor Market Models: Using Different Curves For Projecting Rates And For Discounting," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 13(01), pages 113-137.
  3. Marco Bianchetti, 2012. "The Zeeman Effect in Finance: Libor Spectroscopy and Basis Risk Management," Papers 1210.7329, arXiv.org.
  4. Carlo Acerbi & Giacomo Scandolo, 2008. "Liquidity risk theory and coherent measures of risk," Quantitative Finance, Taylor & Francis Journals, vol. 8(7), pages 681-692.
  5. Damiano Brigo & Agostino Capponi & Andrea Pallavicini & Vasileios Papatheodorou, 2011. "Collateral Margining in Arbitrage-Free Counterparty Valuation Adjustment including Re-Hypotecation and Netting," Papers 1101.3926, arXiv.org.
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