Design of Master Agreements for OTC Derivatives

Overview

The book deals with the design of bilateral contractual arrangements for OTC (over-the-counter)-traded derivatives transactions. These arrangements govern inter alia the rights and obligations of the parties in the event of a default. The main provisions of the widely used ISDA Master Agreements as well as their relation to insolvency law are described in the text. The formal analysis focuses on the trade-off between protecting the interests of the non-defaulting party and enabling the failed counterparty to ...

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Overview

The book deals with the design of bilateral contractual arrangements for OTC (over-the-counter)-traded derivatives transactions. These arrangements govern inter alia the rights and obligations of the parties in the event of a default. The main provisions of the widely used ISDA Master Agreements as well as their relation to insolvency law are described in the text. The formal analysis focuses on the trade-off between protecting the interests of the non-defaulting party and enabling the failed counterparty to reorganize its liabilities in order to avoid inefficient liquidations. The results of the book challenge some widely held beliefs about the benefits of certain provisions commonly used in master agreements. The analysis also suggests implications for the pricing of risky derivatives transactions containing these provisions.

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Product Details

  • ISBN-13: 9783540679349
  • Publisher: Springer Berlin Heidelberg
  • Publication date: 10/28/2000
  • Series: Lecture Notes in Economics and Mathematical Systems Series , #494
  • Edition description: Softcover reprint of the original 1st ed. 2001
  • Edition number: 1
  • Pages: 175
  • Product dimensions: 6.14 (w) x 10.88 (h) x 0.30 (d)

Table of Contents

Introduction.- Derivatives Usage and Documentation.- The Benefits of Derivatives for Non-Financial Firms; ISDA Master Agreements; Legal Risk, Enforceability, and Insolvency Law; Summary; Incomplete Contracts and Security Design.- An Overview of the Literature on Incomplete Contracts; The Basic Framework; A Benchmark Case: Bilateral Bargaining Without Derivatives; Numerical Examples; Summary; The Implications of Provisions in Master Agreements.- The Basic Bargaining Framework With Multiple Claims; The Impact of Close-out Netting Provisions; Limited Two-Way Payment Provisions; Collateralization of Derivatives Transactions; Numerical Examples; Summary; Two-Sided Credit Risk.- A Bilateral Bargaining Framework With Two-Sided Credit Risk; Close-Out Netting; Limited Two-Way Payment Provisions; Numerical Examples; Summary; Conclusion and Outlook

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