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Anti-cyclical versus Risk-sensitive Margin Strategies in Central Clearing

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

Corvinus Economics Working Papers (CEWP) from Corvinus University of Budapest

Abstract: We analyzed the effects of different margin strategies on the loss distribution of a clearinghouse during different crises. First, we developed a general one-period analytical model and proved the existence of a unique optimal margin which is not necessarily risk-sensitive even in a weaker sense. Then, we simulated the operation of a hypothetical clearinghouse active on the US stock futures market in the period 2008-2015. We found that anti-cyclical margin strategies might be optimal also for clearinghouses focusing on their micro-level financial stability, not only for regulators aiming to reduce systemic risk. Anti-cyclical margin strategies performed especially well in minor crises like Flash Crash.

Keywords: financial stability; clearinghouse; central counterparty; EMIR; agent-based simulation; stochastic dominance (search for similar items in EconPapers)
JEL-codes: G20 G28 (search for similar items in EconPapers)
Date: 2017-05-24
New Economics Papers: this item is included in nep-rmg
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Journal Article: Anti-cyclical versus risk-sensitive margin strategies in central clearing (2019) Downloads
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