Abstract

If one has been following the financial news in the United States recently, one could well have the impression that a specter is haunting the world’s financial markets: over-the-counter derivatives activity, also known in shorthand as OTC derivatives. In future years, people will look back on the current concerns and come to the conclusion that the markets were to a great extent afraid of the complex and unknown. This chapter analyzes what OTC derivatives are, their uses, and a technique for managing credit risk for OTC derivatives known as netting.