How Safe are Central Counterparties in Derivatives Markets?
Mark Paddrik and
Peyton Young
Additional contact information
Peyton Young: University of Oxford, Nuffield College
No 934, 2018 Meeting Papers from Society for Economic Dynamics
Abstract:
We propose a general framework for estimating the likelihood of default by central counterparties (CCP) in derivatives markets. Unlike conventional stress testing approaches, which estimate the ability of a CCP to withstand nonpayment by its two largest counterparties, we study the direct and indirect effects of nonpayment by members and/or their clients through the full network of exposures. We illustrate the approach for the U.S. credit default swaps (CDS) market under shocks that are similar in magnitude to the Federal Reserve's stress tests. The analysis indicates that conventional stress testing approaches may underestimate the potential vulnerability of the main CCP for this market.
Date: 2018
New Economics Papers: this item is included in nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2018/paper_934.pdf (application/pdf)
Related works:
Working Paper: How Safe are Central Counterparties in Derivatives Markets? (2017)
Working Paper: How Safe are Central Counterparties in Derivatives Markets? (2017)
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:red:sed018:934
Access Statistics for this paper
More papers in 2018 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann (chuichuiche@gmail.com).