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Anti-cyclical versus risk-sensitive margin strategies in central clearing

Edina Berlinger (), Barbara Dömötör () and Ferenc Illés

Journal of International Financial Markets, Institutions and Money, 2019, vol. 62, issue C, 117-131

Abstract: We examine the effects of different margin strategies on the loss distribution of a clearing house during various crises of different stock price trends, volatility expectations, bid-ask spreads, and funding liquidity. We simulate a hypothetical clearing house active on the US stock futures market 2008–2015, investigating its micro-level stability. We find that it might be optimal to replace the strict risk-sensitive margin strategy by more anti-cyclical ones. The extreme anti-cyclical strategy (full smoothing), however, was suboptimal on this sample. Our results may help institutions elaborate their margin strategies to develop risk management systems in line with new regulations.

Keywords: Micro-simulation; Risk analysis; Clearing house (search for similar items in EconPapers)
Date: 2019
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Working Paper: Anti-cyclical versus Risk-sensitive Margin Strategies in Central Clearing (2017) Downloads
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DOI: 10.1016/j.intfin.2019.06.002

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