How safe are central counterparties in derivatives markets?
We propose a general framework for estimating the vulnerability to default by a central counterparty (CCP) in derivatives markets. Unlike conventional stress testing approaches, which estimate the ability of a CCP to withstand nonpayment by its two largest counterparties, we study the direct and ind...
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| Format: | Working paper |
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University of Oxford
2017
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| _version_ | 1797062181680840704 |
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| author | Young, H Paddrik, M |
| author_facet | Young, H Paddrik, M |
| author_sort | Young, H |
| collection | OXFORD |
| description | We propose a general framework for estimating the vulnerability to default by a central counterparty (CCP) in derivatives markets. Unlike conventional stress testing approaches, which estimate the ability of a CCP to withstand nonpayment by its two largest counterparties, we study the direct and indirect eects of nonpayment by members and/or their clients through the full network of exposures. We illustrate the approach for the U.S. credit default swaps market under shocks that are similar in magnitude to the Federal Reserve's stress tests. The analysis indicates that conventional stress testing approaches may underestimate the potential vulnerability of the main CCP for this market. |
| first_indexed | 2024-03-06T20:41:55Z |
| format | Working paper |
| id | oxford-uuid:3491c94a-5645-4a9c-8384-b0e7f4f1d83d |
| institution | University of Oxford |
| last_indexed | 2024-03-06T20:41:55Z |
| publishDate | 2017 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:3491c94a-5645-4a9c-8384-b0e7f4f1d83d2022-03-26T13:26:44ZHow safe are central counterparties in derivatives markets?Working paperhttp://purl.org/coar/resource_type/c_8042uuid:3491c94a-5645-4a9c-8384-b0e7f4f1d83dSymplectic ElementsBulk import via SwordUniversity of Oxford2017Young, HPaddrik, MWe propose a general framework for estimating the vulnerability to default by a central counterparty (CCP) in derivatives markets. Unlike conventional stress testing approaches, which estimate the ability of a CCP to withstand nonpayment by its two largest counterparties, we study the direct and indirect eects of nonpayment by members and/or their clients through the full network of exposures. We illustrate the approach for the U.S. credit default swaps market under shocks that are similar in magnitude to the Federal Reserve's stress tests. The analysis indicates that conventional stress testing approaches may underestimate the potential vulnerability of the main CCP for this market. |
| spellingShingle | Young, H Paddrik, M How safe are central counterparties in derivatives markets? |
| title | How safe are central counterparties in derivatives markets? |
| title_full | How safe are central counterparties in derivatives markets? |
| title_fullStr | How safe are central counterparties in derivatives markets? |
| title_full_unstemmed | How safe are central counterparties in derivatives markets? |
| title_short | How safe are central counterparties in derivatives markets? |
| title_sort | how safe are central counterparties in derivatives markets |
| work_keys_str_mv | AT youngh howsafearecentralcounterpartiesinderivativesmarkets AT paddrikm howsafearecentralcounterpartiesinderivativesmarkets |