IDEAS home Printed from https://ideas.repec.org/p/arx/papers/math-0506077.html
   My bibliography  Save this paper

Study on optimal timing of mark-to-market for contingent credit risk control

Author

Listed:
  • Jiali Liao
  • Ted Theodosopoulos

Abstract

Over-the-counter derivatives have contributed significantly to the effectiveness and efficiency of the international financial system but also entail significant counterparty credit risk. Collateralization is one of the most important and widespread credit risk mitigation techniques used in derivatives transactions. However, the relevant decisions are often made in an ad-hoc manner, without reference to an analytical framework. Very little academic research has addressed the quantitative analysis of collateralization for contingent credit risk control. The issue of mark-to-market timing becomes important for reducing credit exposure of illiquid and long term derivative contracts due to the difficulty and cost of marking to market. the goal of this research is to propose a framework for minimizing the potential credit exposure of collateralized derivative transactions by optimizing mark-to-market timing.

Suggested Citation

  • Jiali Liao & Ted Theodosopoulos, 2005. "Study on optimal timing of mark-to-market for contingent credit risk control," Papers math/0506077, arXiv.org.
    • Handle: RePEc:arx:papers:math/0506077
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/math/0506077
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. repec:zbw:bofrdp:2000_002 is not listed on IDEAS
    2. Cossin, Didier & González, Fernando & Huang, Zhijiang & Backé, Peter, 2003. "A framework for collateral risk control determination," Working Paper Series 209, European Central Bank.
    3. Esa Jokivuolle & Samu Peura, 2003. "Incorporating Collateral Value Uncertainty in Loss Given Default Estimates and Loan‐to‐value Ratios," European Financial Management, European Financial Management Association, vol. 9(3), pages 299-314, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hui Zhang & Wenyu Meng & Xiaojie Wang & Jianwei Zhang, 2017. "Application of BSDE in Standard Inventory Financing Loan," Discrete Dynamics in Nature and Society, Hindawi, vol. 2017, pages 1-6, June.
    2. Ran Zhang & Jing Zhang & Shuang Xu, 2015. "Determining pledged loan-to-value ratio: an option pricing perspective," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 1(1), pages 1-13, December.
    3. Rafal M. Wojakowski & M. Shahid Ebrahim & Aziz Jaafar & Murizah Osman Salleh, 2019. "Can Loan Valuation Adjustment (LVA) approach immunize collateralized debt from defaults?," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 28(2), pages 141-158, May.
    4. Ascari, Guido & Rankin, Neil, 2007. "Perpetual youth and endogenous labor supply: A problem and a possible solution," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 708-723, December.
    5. Linda Allen & Anthony Saunders, 2004. "Incorporating Systemic Influences Into Risk Measurements: A Survey of the Literature," Journal of Financial Services Research, Springer;Western Finance Association, vol. 26(2), pages 161-191, October.
    6. Jean-David Fermanian, 2020. "On the Dependence between Default Risk and Recovery Rates in Structural Models," Annals of Economics and Statistics, GENES, issue 140, pages 45-82.
    7. Emily Johnston Ross & Lynn Shibut, 2021. "Loss Given Default, Loan Seasoning and Financial Fragility: Evidence from Commercial Real Estate Loans at Failed Banks," The Journal of Real Estate Finance and Economics, Springer, vol. 63(4), pages 630-661, November.
    8. Niinimäki, Juha-Pekka, 2010. "Moral hazard in the credit market when the collateral value is stochastic," Research Discussion Papers 22/2010, Bank of Finland.
    9. Zhang, Shuai & Hou, Xinyu & Ba, Shusong, 2021. "What determines interest rates for bitcoin lending?," Research in International Business and Finance, Elsevier, vol. 58(C).
    10. Cao, Erbao & Yu, Man, 2019. "The bright side of carbon emission permits on supply chain financing and performance," Omega, Elsevier, vol. 88(C), pages 24-39.
    11. Maria Stefanova, 2012. "Recovery Risiko in der Kreditportfoliomodellierung," Springer Books, Springer, number 978-3-8349-4226-5, December.
    12. Tao Peng, 2010. "Portfolio Credit Risk Modelling and CDO Pricing - Analytics and Implied Trees from CDO Tranches," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 8, July-Dece.
    13. Yuki Itoh, 2008. "Recovery Process Model," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 15(3), pages 307-347, December.
    14. Qiang Lin & Ying Peng, 2021. "Incentive mechanism to prevent moral hazard in online supply chain finance," Electronic Commerce Research, Springer, vol. 21(2), pages 571-598, June.
    15. Peng Xu, 2016. "Analysis on Logistic Contract for FPLs Two-sided Bargaining Game in Agricultural Product Financing," Business and Management Research, Business and Management Research, Sciedu Press, vol. 5(3), pages 30-35, September.
    16. Hong Kong Monetary Authority, 2008. "The housing market channel of the monetary transmission mechanism in Hong Kong," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 221-234, Bank for International Settlements.
    17. Jacobi Osnat & Sher Noam, 2015. "A Commitment Mechanism to Eliminate Willful Contract Litigation," Review of Law & Economics, De Gruyter, vol. 11(2), pages 231-266, July.
    18. Benjamin Bade & Daniel Rösch & Harald Scheule, 2011. "Default and Recovery Risk Dependencies in a Simple Credit Risk Model," European Financial Management, European Financial Management Association, vol. 17(1), pages 120-144, January.
    19. Stefan Hlawatsch & Sebastian Ostrowski, 2010. "Simulation and Estimation of Loss Given Default," FEMM Working Papers 100010, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    20. Hui, C.H. & Lo, C.F. & Wong, T.C. & Man, P.K., 2006. "Measuring provisions for collateralised retail lending," Journal of Economics and Business, Elsevier, vol. 58(4), pages 343-361.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:math/0506077. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.