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Analyzing Collateral Repo Haircuts In Asian Countries

Author

Listed:
  • Iman Gunadi

    (Bank Indonesia)

  • Aryo Sasongko

    (Bank Indonesia)

  • Dian Fitriarni Sari

    (Bank Indonesia)

Abstract

We study repo haircut determinants and develop the haircut calculation model. Collateral securities are government and corporate fixed-incomes, and we examine the determinants in Indonesia, Malaysia, Thailand, and Hong Kong. Implementing the Generalized AutoRegressive-Conditional Heteroskedasticity (GARCH) process, we find that the changes in long-memory returns, liquidity, and currency influence haircuts. Then, we introduce the haircut model using the historical and parametric Value-at-Risk (VaR), burdening the borrower as much as the α-percentile collateral loss. When borrowers default, lenders get the collaterals and haircuts to compensate for the collateral-price change.

Suggested Citation

  • Iman Gunadi & Aryo Sasongko & Dian Fitriarni Sari, 2022. "Analyzing Collateral Repo Haircuts In Asian Countries," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(4), pages 495-530, January.
    • Handle: RePEc:idn:journl:v:25:y:2022:i:4a:p:495-530
    DOI: https://doi.org/10.21098/bemp.v25i4.2417
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    More about this item

    Keywords

    Repo analysis; Risk tolerance; Historical value-at-risk; Repo haircut;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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