Central clearing boosts welfare but margin matters – RBA paper
Welfare gains are sensitive to the level of margin requirements
Research published today (November 2) by the Reserve Bank of Australia models the conditions under which mandatory central clearing boosts welfare.
The working paper, The efficiency of central clearing: a segmented markets approach, by James Hansen and Angus Moore, tackles the question using a general equilibrium model with segmented and incomplete markets. By mutualising counterparty credit risk, a central counterparty (CCP) can boost welfare, particularly when the probability of default is
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