ACE Departmental Seminar
Friday, December 11, 2020
12:00-1:00 p.m. CST
by Join Zoom Meeting
https://illinois.zoom.us/j/82850158873?pwd=V1E4M0RZeDNQK0ZUdk83THlwSzNMZz09
Meeting ID: 828 5015 8873
Password: 127028
Scott Mixon and Esen Onur
U.S. CFTC
“Risk Appetite and Intermediation by Swap Dealers”
Available at SSRN: https://ssrn.com/abstract=3566003 or http://dx.doi.org/10.2139/ssrn.3566003
Abstract
We find that intermediary risk appetite plays an important role in the availability of dealer hedging services provided to real economy firms. We show that dealers intermediate the swap exposures of different clienteles and hedge some residual risk in the futures market. Using novel data on WTI crude oil swaps and futures positions of individual dealers, we present evidence that dealers hedge
bespoke contracts with standard, liquid instruments and face basis risk. We conclude that the equilibrium quantity of basis risk taken, and therefore the amount of inter-mediation service available at a given price, is correlated with risk appetite.
Keywords: Dealers, Hedging, Risk Appetite, Inter-mediation Service
JEL Classification: G11, G13, G21, G32
Please contact Michel Robe (mrobe@illinois.edu) if you would like to talk with the speakers.