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Analyzing the Effects of Trade Compression on Risk Propagation in Over-the-Counter Derivative Markets

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Following the 2008 financial crisis, a new and mostly unstudied technique has become a central tenet of todays financial markets: portfolio trade compression. Trade compression is a service offered by third party vendors that lowers a banks gross notional exposures, while keeping net exposures the same. However, the effects of compression on systemic risk are unknown. In order to test the effectiveness of trade compression in risk mitigation, we compare the loss after default in markets with a variety of structures.

  • This report represents the work of one or more WPI undergraduate students submitted to the faculty as evidence of completion of a degree requirement. WPI routinely publishes these reports on its website without editorial or peer review.
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  • E-project-042518-165245
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  • 2018
Date created
  • 2018-04-25
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