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Systemic Risk and Central Clearing Counterparty Design

Author

Listed:
  • Hamed Amini

    (Ecole Polytechnique Fédérale de Lausanne)

  • Damir Filipović

    (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute)

  • Andreea Minca

    (Cornell University)

Abstract

We examine the effects on a financial network of multilateral clearing via a central clearing counterparty (CCP) from an ex ante and ex post perspective. The CCP is capitalized with equity and a guarantee fund and it can charge a volume-based fee. We propose a CCP design which improves aggregate surplus, and reduces banks' liquidation and shortfall losses. We characterize the CCP's equity, fee and guarantee fund policies that reduce systemic risk and are incentive compatible for banks. A simulation study based on aggregate market data shows that central counterparty clearing can reduce systemic risk and improve banks' utility.

Suggested Citation

  • Hamed Amini & Damir Filipović & Andreea Minca, 2013. "Systemic Risk and Central Clearing Counterparty Design," Swiss Finance Institute Research Paper Series 13-34, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1334
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    Citations

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    Cited by:

    1. Hamed Amini & Andreea Minca, 2016. "Inhomogeneous Financial Networks and Contagious Links," Operations Research, INFORMS, vol. 64(5), pages 1109-1120, October.
    2. Alessandro Doldi & Marco Frittelli, 2021. "Real-Valued Systemic Risk Measures," Mathematics, MDPI, vol. 9(9), pages 1-24, April.
    3. Paul Glasserman & Qi Wu, 2018. "Persistence and Procyclicality in Margin Requirements," Management Science, INFORMS, vol. 64(12), pages 5705-5724, December.
    4. Francesca Biagini & Jean-Pierre Fouque & Marco Frittelli & Thilo Meyer-Brandis, 2020. "On fairness of systemic risk measures," Finance and Stochastics, Springer, vol. 24(2), pages 513-564, April.

    More about this item

    Keywords

    Over the Counter Markets; Central Counterparty Clearing; Market Design; Financial Network; Contagion; Systemic Risk; Credit Default Swap Markets;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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