Evaluating risk and stress-testing challenges for central counterparties

Franck Viollet
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Franck Viollet: Senior Risk Expert, CCP Directorate, European Securities and Markets Authority, France

Journal of Securities Operations & Custody, 2023, vol. 15, issue 2, 123-133

Abstract: This paper discusses the types of challenges that stakeholders face in evaluating risk and margin models for central counterparties (CCP). Two important tools to evaluate the adequacy of CCP resources to cover potential future exposures are back-testing and stress-testing. The paper discusses challenges when designing and analysing back-tests, including the use of unit tests and the inclusion of add-ons. The design and specificities of supervisory stress-testing are covered with a particular focus on liquidity and concentration risk.

Keywords: back-testing; stress-testing; margin model; statistical performance; add-ons; model risk (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:aza:jsoc00:y:2023:v:15:i:2:p:123-133

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