Skip to main content
Mobile
  • Finance, Accounting & Economics
  • Global Business Management
  • Management, Leadership & Organisation
  • Marketing & Sales
  • Strategy
  • Technology & Operations
HS Talks HS Talks
Subjects  
Search
  • Notifications
    Notifications

    No current notifications.

  • User
    Welcome Guest
    You have Limited Access The Business & Management Collection
    Login
    Get Assistance
    Login
    Forgot your password?
    Login via your organisation
    Login via Organisation
    Get Assistance
Finance, Accounting & Economics
Global Business Management
Management, Leadership & Organisation
Marketing & Sales
Strategy
Technology & Operations
Practice paper

Quantification of central counterparty risk

Matthias Arnsdorf
Journal of Risk Management in Financial Institutions, 5 (3), 273-287 (2012)
https://doi.org/10.69554/BUWE2936

Abstract

A clearing member of a central counterparty (CCP) is exposed to losses on their guarantee fund and initial margin contributions. Such losses can be incurred whenever the CCP has insufficient funds to unwind the portfolio of a defaulting clearing member. This does not necessarily require the default of the CCP itself. In this paper the aim is to quantify the risk a financial institution has when facing a CCP. It is shown that a clearing member's CCP risk is given by a sum of exposures to each of the other clearing members. This arises because of the implicit default insurance that each member has provided in the form of mutualised, loss sharing collateral. The exposures are calculated by explicitly modelling the capital structure of a CCP as well as the loss distributions of the individual member portfolios. An important consideration in designing the model is the limited transparency with respect to the portfolio composition and collateral levels of individual clearing members. To overcome this the fact is leveraged that, for a typical CCP, margin levels are risk based. In particular, the portfolio loss tail as a Pareto distribution is parameterised and this is calibrated to the CCP defined probability of losses exceeding the posted initial margin levels. A key aspect of the model is that wrong-way risk is explicitly taken into account, ie the fact that member defaults are more likely to occur in stressed market conditions, as well as potential contagion between a member's default and the losses on his portfolio.

Keywords: counterparty credit risk; central counterparty; clearing house; systemic risk; exposure; wrong-way risk (WWR)

The full article is available to subscribers to the journal.

Already a subscriber? Login or review other options.

Citation

Arnsdorf, Matthias (2012, June 1). Quantification of central counterparty risk. In the Journal of Risk Management in Financial Institutions, Volume 5, Issue 3. https://doi.org/10.69554/BUWE2936.

Options

  • Download PDF
  • Share this page
    Share This Article
    Messaging
    • Outlook
    • Gmail
    • Yahoo!
    • WhatsApp
    Social
    • Facebook
    • X
    • LinkedIn
    • VKontakte
    Permalink
cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 5 / Issue 3
© Henry Stewart
Publications LLP

The Business & Management Collection

  • ISSN: 2059-7177
  • Contact Us
  • Request Free Trial
  • Recommend to Your Librarian
  • Subscription Information
  • Match Content
  • Share This Collection
  • Embed Options
  • View Quick Start Guide
  • Accessibility

Categories

  • Finance, Accounting & Economics
  • Global Business Management
  • Management, Leadership & Organisation
  • Marketing & Sales
  • Strategy
  • Technology & Operations

Librarian Information

  • General Information
  • MARC Records
  • Discovery Services
  • Onsite & Offsite Access
  • Federated (Shibboleth) Access
  • Usage Statistics
  • Promotional Materials
  • Testimonials

About Us

  • About HSTalks
  • Editors
  • Contact Information
  • About the Journals

HSTalks Home

Follow Us On:

HS Talks
  • Site Requirements
  • Copyright & Permissions
  • Terms
  • Privacy
  • Sitemap
© Copyright Henry Stewart Talks Ltd

Personal Account Required

To use this function, you need to be signed in with a personal account.

If you already have a personal account, please login here.

Otherwise you may sign up now for a personal account.

HS Talks

Cookies and Privacy

We use cookies, and similar tools, to improve the way this site functions, to track browsing patterns and enable marketing. For more information read our cookie policy and privacy policy.

Cookie Settings

How Cookies Are Used

Cookies are of the following types:

  • Essential to make the site function.
  • Used to analyse and improve visitor experience.

For more information see our Cookie Policy.

Some types of cookies can be disabled by you but doing so may adversely affect functionality. Please see below:

(always on)

If you block these cookies or set alerts in your browser parts of the website will not work.

Cookies that provide enhanced functionality and personalisation. If not allowed functionality may be impaired.

Cookies that count and track visits and on website activity enabling us to organise the website to optimise the experience of users. They may be blocked without immediate adverse effect.