Tim Xiao
Data:    https://finpricing.com/lib/IrCurve.html
This paper presents a new model for pricing OTC derivatives subject to collateralization. The model is used to measure the exposure for derivatives and securities. The exposures are used for both regulatory capital calculation and internal risk management purposes. The regulatory capital affects the operating cost of the Bank trading activities. Using a unique dataset, we find empirical evidence that both collateral arrangement and credit risk together can sufficiently explain unsecured credit costs. This finding suggests that failure to properly account for collateralization may result in significant mispricing of derivatives. We also empirically gauge the impact of collateral agreements on risk measurements. Our findings indicate that there are important interactions between market and credit risk.