Initial margin estimations for credit default swap portfolios

Stanislav Ivanov

Journal of Financial Market Infrastructures

Abstract: In this paper, a clearinghouse framework to establish initial margin requirements for portfolios of credit default swap instruments is presented. The estimation of portfolio risk, attributed to credit spread dynamics, features large-scale Monte Carlo simulations. It is argued that copula-based Monte Carlo implementations possess certain advantages over alternative techniques. Copula-based Monte Carlo simulations are suitable for risk management applications at clearinghouses and provide a robust, capital-efficient and flexible modeling approach to assess the risk of complex portfolios.

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Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ7:5300651

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