Central Counterparty Exposure in Stressed Markets

Wenqian Huang, Albert Menkveld and Shihao Yu ()
Additional contact information
Shihao Yu: School of Business and Economics, Vrije Universiteit Amsterdam, 1081 HV Amsterdam, Netherlands

Management Science, 2021, vol. 67, issue 6, 3596-3617

Abstract: Time is valuable, particularly in stressed markets. Because central counterparties (CCPs) have become systemically important, we need to understand the dynamics of their exposure toward clearing members at high frequencies. We track such exposure and decompose it, yielding the following insights. The composition of CCP exposure is fundamentally different in the tails. At extreme levels or during rapid increases, there is elevated crowding. This is the result of clearing members all concentrating their positions on a single security or a particular portfolio, which is desirable if motivated by hedging but worrying if due to speculation.

Keywords: central counterparties (CCPs); crowding risk; market stress (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2020.3601 (application/pdf)

Related works:
Working Paper: Central counterparty exposure in stressed markets (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:6:p:3596-3617

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().