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Anti-cyclical versus risk-sensitive margin strategies in central clearing

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  • Berlinger, Edina
  • Dömötör, Barbara
  • Illés, Ferenc

Abstract

We examine the effects of different margin strategies on the loss distribution of a clearing house during various crises of different stock price trends, volatility expectations, bid-ask spreads, and funding liquidity. We simulate a hypothetical clearing house active on the US stock futures market 2008–2015, investigating its micro-level stability. We find that it might be optimal to replace the strict risk-sensitive margin strategy by more anti-cyclical ones. The extreme anti-cyclical strategy (full smoothing), however, was suboptimal on this sample. Our results may help institutions elaborate their margin strategies to develop risk management systems in line with new regulations.

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  • Berlinger, Edina & Dömötör, Barbara & Illés, Ferenc, 2019. "Anti-cyclical versus risk-sensitive margin strategies in central clearing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 62(C), pages 117-131.
    • Handle: RePEc:eee:intfin:v:62:y:2019:i:c:p:117-131
    DOI: 10.1016/j.intfin.2019.06.002
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    Cited by:

    1. Paul Glasserman & Qi Wu, 2018. "Persistence and Procyclicality in Margin Requirements," Management Science, INFORMS, vol. 64(12), pages 5705-5724, December.

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    More about this item

    Keywords

    Micro-simulation; Risk analysis; Clearing house;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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