How Does Collateralization Help Reduce Counterparty Risk in OTC Markets? ▴ Learn

How Does Collateralization Help Reduce Counterparty Risk in OTC Markets?

Collateralization involves one or both parties posting assets (like cash or securities) to cover potential losses in the event of a default. This reduces the "exposure at default" and provides a mechanism for the non-defaulting party to recover losses.

It is a crucial component of modern OTC risk management, formalized through a Credit Support Annex (CSA).

Explain the Concept of “Collateralization” in the Context of Writing a Derivative Contract

How Does the Use of Collateral (E.g. Stablecoins) in DeFi Futures Affect Tax Basis?

How Does the Concept of ‘Market Capitalization’ Relate to the Recovery Potential after an Attack?

How Does a Swap-Based ETF Typically Post Collateral to Mitigate Counterparty Risk?