Does initial margin eliminate counterparty risk?
Andersen, Pykhtin and Sokol show the existence of residual exposure after initial margin posting
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It is widely believed that mandatory posting of initial margin should effectively eliminate counterparty risk from bilateral trading. Here, Leif Andersen, Michael Pykhtin and Alexander Sokol apply a new framework for collateralised exposure modelling that shows this is not necessarily true. The authors demonstrate that time lags in the credit support annex between
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