Default Risk Mitigation Mechanisms in Derivatives Markets

8 Pages Posted: 6 Oct 2008

See all articles by Rajna Gibson

Rajna Gibson

European Corporate Governance Institute (ECGI); University of Geneva - Geneva Finance Research Institute (GFRI)

Carsten Murawski

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Date Written: October 6, 2008

Abstract

In this note we describe some important default risk mitigation mechanisms employed in derivatives markets. We focus on those mitigation mechanisms that differ across contracts traded in today's derivatives markets. We analyze netting, margining, rehypothecation, and central counterparties.

Keywords: Derivative securities, default risk, collateral, margining, central counterparty

JEL Classification: G19, G21

Suggested Citation

Gibson, Rajna and Murawski, Carsten, Default Risk Mitigation Mechanisms in Derivatives Markets (October 6, 2008). Available at SSRN: https://ssrn.com/abstract=1279459 or http://dx.doi.org/10.2139/ssrn.1279459

Rajna Gibson

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41.22.379.89.83 (Phone)

Carsten Murawski (Contact Author)

University of Melbourne - Department of Finance ( email )

Brain, Mind & Markets Lab
Parkville, Victoria 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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