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Evaluating risk and stress-testing challenges for central counterparties

Author

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  • Viollet, Franck

    (Senior Risk Expert, CCP Directorate, European Securities and Markets Authority, France)

Abstract

This paper discusses the types of challenges that stakeholders face in evaluating risk and margin models for central counterparties (CCP). Two important tools to evaluate the adequacy of CCP resources to cover potential future exposures are back-testing and stress-testing. The paper discusses challenges when designing and analysing back-tests, including the use of unit tests and the inclusion of add-ons. The design and specificities of supervisory stress-testing are covered with a particular focus on liquidity and concentration risk.

Suggested Citation

  • Viollet, Franck, 2023. "Evaluating risk and stress-testing challenges for central counterparties," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 15(2), pages 123-133, June.
    • Handle: RePEc:aza:jsoc00:y:2023:v:15:i:2:p:123-133
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    More about this item

    Keywords

    back-testing; stress-testing; margin model; statistical performance; add-ons; model risk;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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