Counterparty Risk and Counterparty Choice in the Credit Default Swap Market

• 成果类型: Article; Early Access
• 署名作者: Du, Wenxin; Gadgil, Salil; Gordy, Michael B.; Vega, Clara
• 署名单位: Columbia University; United States Department of the Treasury; Office of Financial Research; Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4870
• 发表日期: 2023
• 关键词: Counterparty credit risk; Credit Default Swaps; Central clearing; Credit rationing; counterparty choice

摘要

We investigate how market participants price and manage counterparty credit risk using confidential trade repository data on single-name credit default swap (CDS) transactions. We find that counterparty risk has a modest impact on the pricing of CDS contracts but a large impact on the choice of counterparties. For contracts ineligible for central clearing, we show that market participants are significantly less likely to trade with counterparties whose credit risk is highly correlated with the credit risk of the reference entities and with counterparties whose credit quality is low. For clearable contracts, we find that nondealers are more likely to clear during a crisis and less likely to clear when the reference entity is a large U.S. dealer or a sovereign.