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Margins, Liquidity, and the Cost of Hedging

Antonin S. Mello and John E. Parsons, Journal of Applied Corporate Finance

Vol. 25, No. 1, Winter 2013, pp. 34-43, 2013

Antonin S. Mello and John E. Parsons, Journal of Applied Corporate Finance, Vol. 25, No. 1, Winter 2013, pp. 34-43, 2013

Recent financial reforms, such as the Dodd-Frank Act in the U.S. and the European Market Infrastructure Regulation, encourage greater use of clearing and therefore increased margining of derivative trades. They also impose margining requirements on noncleared derivative trades. Such requirements have sparked a debate about whether a margin mandate increases the cost of hedging by nonfinancial corporations - the so-

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