Regulation of off-balance sheet exposures and pricing of over-the-counter derivatives

In the post-crisis period substantial attention has been placed on regulation of exposures held off balance sheet by large banks. I analyze the effect on equity holders of such regulation. While requiring banks to hold capital against their on balance sheet exposures largely doses not perturb equity holder valuation capital held against off balance sheet exposures decreases the equity claim by generating a deleveraging effect when the balance sheet is expanded. Shareholders command a premium to compensate for the change in the value of their claim leading to a deviation of prices of redundant derivative claims from their replicating portfolios. Importantly, this effect does not appear under a standard capital ratio.

Name thesis:degree_name

Master

Department dc:contributor.department

Sloan School of Management

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2019

Author dc:creator

• Goulding, William, Ph. D. Sloan School of Management.

Advisor dc:contributor.advisor

• Adrien Verdelhan.

• Sloan School of Management.

Statement dc:rights

• MIT theses are protected by copyright. They may be viewed, downloaded, or printed from this source but further reproduction or distribution in any format is prohibited without written permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/123380

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/123380