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Margins, Liquidity and the Cost of Hedging

Antonio S. Mello and John E. Parsons

May 2012

Antonio S. Mello and John E. Parsons, May 2012

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 OTC derivative dealers. One question arising out of the debates over these reforms is, does a margin mandate increases the cost of hedging by non-financial corporations

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