Meet Joe. Joe is a swaps trader within a small institution that has a straightforward hedging strategy at both the micro and macro level. Being a price-taker, Joe has built and maintained broker relationships that enable him to easily get a swap priced at an acceptable level provided counterparty limits allow. Joe’s back office is practicing weekly collateral exchange with various counterparties in cash. As such, Joe lives in a very comfortable world.
But Joe is in for a nasty surprise. The pract
