Derivatives Clearing, Default Risk, and Insurance

Christophe Perignon () and Robert Jones

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Abstract: Using daily data on margins and variation margins for all clearing members of the Chicago Mercantile Exchange, we analyze the clearing house exposure to the risk of default by clearing members. We find that the major source of default risk for a clearing member is proprietary trading rather than trading by customers. Additionally, we show that extreme losses suffered by important clearing firms tend to cluster, which raises systemic risk concerns. Finally, we discuss how private insurance could be used to cover the loss from defaults by clearing members.

Keywords: Derivatives Clearing; Default Risk; Insurance (search for similar items in EconPapers)
Date: 2013-06
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Citations: View citations in EconPapers (23)

Published in Journal of Risk and Insurance, 2013, 80 (2), pp.373-400. ⟨10.1111/j.1539-6975.2012.01489.x⟩

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Journal Article: Derivatives Clearing, Default Risk, and Insurance (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00829059

DOI: 10.1111/j.1539-6975.2012.01489.x

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