Piterbarg Cooking With Collateral Pdf 14
Regulations may prevent end users from trading on an uncollateralized basis if they are not hedging existing exposures and may limit the amount of trading the end user can do on an uncollateralized basis. Whether this would prevent arbitrage is unclear. Derivatives traders have traditionally been quite successful at finding ways around regulations that prevent profitable trading when pricing is different in two markets. But even if regulations do deny access to arbitrage for all market participants, the theoretical existence of arbitrage is a symptom of serious problems with industry practice. It is hardly reassuring to argue that the derivatives market is being protected from its own mispricing by regulation!
piterbarg cooking with collateral pdf 14