CCP interoperability and system stability

Xiaobing Feng and Haibo Hu
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Xiaobing Feng: Shanghai University of International Business and Economics, Shanghai 201620, P. R. China2Shanghai Jiao Tong University, Shanghai 200240, P. R. China3Boston University, Boston MA 02215, USA
Haibo Hu: East China University of Science and Technology, Shanghai 200237, P. R. China

International Journal of Modern Physics C (IJMPC), 2016, vol. 27, issue 03, 1-18

Abstract: To control counterparty risk, financial regulations such as the Dodd–Frank Act are increasingly requiring standardized derivatives trades to be cleared by central counterparties (CCPs). It is anticipated that in the near term future, CCPs across the world will be linked through interoperability agreements that facilitate risk sharing but also serve as a conduit for transmitting shocks. This paper theoretically studies a networked network with CCPs that are linked through interoperability arrangements. The major finding is that the different configurations of networked network CCPs contribute to the different properties of the cascading failures.

Keywords: CCP interoperability; cascading failures; OTC network (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1142/S012918311650025X

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