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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 analyzed the effects of different margin strategies on the loss distribution of a clearinghouse during different crises. First, we developed a general one-period analytical model and proved the existence of a unique optimal margin which is not necessarily risk-sensitive even in a weaker sense. Then, we simulated the operation of a hypothetical clearinghouse active on the US stock futures market in the period 2008-2015. We found that anti-cyclical margin strategies might be optimal also for clearinghouses focusing on their micro-level financial stability, not only for regulators aiming to reduce systemic risk. Anti-cyclical margin strategies performed especially well in minor crises like Flash Crash.

Suggested Citation

  • Berlinger, Edina & Dömötör, Barbara & Illés, Ferenc, 2017. "Anti-cyclical versus Risk-sensitive Margin Strategies in Central Clearing," Corvinus Economics Working Papers (CEWP) 2017/03, Corvinus University of Budapest.
    • Handle: RePEc:cvh:coecwp:2017/03
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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.
    2. Friesz, Melinda & Váradi, Kata, 2023. "Your skin or mine: Ensuring the viability of a central counterparty," Emerging Markets Review, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    financial stability; clearinghouse; central counterparty; EMIR; agent-based simulation; stochastic dominance;
    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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