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Stress Indicator for Clearing Houses

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

Central European Business Review, 2016, vol. 2016, issue 4, 47-60

Abstract: As a regulatory answer to the crisis, financial instruments are increasingly forced to be cleared centrally even in the OTC markets; therefore, risk management of central clearinghouses has become a central issue. A key term of the regulation is a stress event; however, it is not specified in the legislation what should be meant under stress in the case of a clearinghouse. To find an objective stress indicator, we built up a micro-simulation model of a hypothetical clearinghouse operating on the US equity market between 2007 and 2015. Based on this, we developed a logit regression model to specify an appropriate stress indicator and we showed that our "tailor-made" stress index calibrated to the position of the clearinghouse performs significantly better than the usual market proxies for financial stress.

Keywords: Financial stability; central counterparty; EMIR; agent-based simulation; logit regression; Gini-coefficient (search for similar items in EconPapers)
JEL-codes: G01 G23 G32 (search for similar items in EconPapers)
Date: 2016
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Faculty of Business Administration, University of Economics, Prague

DOI: 10.18267/j.cebr.166

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