Managing risk in multi-asset class, multimarket central counterparties: The CORE approach

L.A.B.G. Vicente, F.V. Cerezetti, S.R. De Faria, T. Iwashita and O.R. Pereira

Journal of Banking & Finance, 2015, vol. 51, issue C, 119-130

Abstract: Multi-asset class, multimarket central counterparties (CCPs) are becoming less uncommon as a result of merges between specialized (single-asset class, single market) CCPs and market demands for greater capital efficiency. Yet, traditional CCP risk management models often lack the necessary sophistication to estimate potential losses relative to the closeout process of a defaulter’s portfolio in a multi-asset class, multimarket environment. As a result, multi-asset class, multimarket CCPs usually rely on a simplified silo approach for risk calculation which not only fails to deliver efficiency, but may also increase systemic risk. The CORE (Closeout Risk Evaluation) approach, on the other hand, provides conceptual and mathematical tools necessary for robust and efficient central counterparty risk evaluation in multi-asset class and multimarket environments, acknowledging the portfolio dynamics involved in the closeout process as well as important “real life” market frictions.

Keywords: Central counterparty; Risk management; Closeout risk; Liquidity risk; Market risk (search for similar items in EconPapers)
JEL-codes: C61 G20 G32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:51:y:2015:i:c:p:119-130

DOI: 10.1016/j.jbankfin.2014.08.016

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