Margin Setting in Credit Derivatives Clearing Houses
(2010) In Journal of Fixed Income 19(4). p.37-43- Abstract
- The possible benefits of introducing central counterparties, or clearing houses, in the credit derivatives market is currently intensively debated among bankers and policymakers. The exact outcome of this discussion is not yet clear but regardless of how any eventual clearing is organized the actual clearing house needs to be properly capitalized and needs to maintain accurate margin (collateral) levels. In this article we therefore discuss how extreme value theory can be used to compute margin levels for such a clearing house. We present some evidence of credit derivatives price change distributions being significantly non-normal, and margins based on extreme value theory are found to be more accurate than those based on normal or... (More)
- The possible benefits of introducing central counterparties, or clearing houses, in the credit derivatives market is currently intensively debated among bankers and policymakers. The exact outcome of this discussion is not yet clear but regardless of how any eventual clearing is organized the actual clearing house needs to be properly capitalized and needs to maintain accurate margin (collateral) levels. In this article we therefore discuss how extreme value theory can be used to compute margin levels for such a clearing house. We present some evidence of credit derivatives price change distributions being significantly non-normal, and margins based on extreme value theory are found to be more accurate than those based on normal or historical distributions, particularly at more conservative margin levels. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/1758787
- author
- Byström, Hans LU
- organization
- publishing date
- 2010
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- extreme value theory, clearing house, central counterparty, margin, credit derivative, OTC, iTraxx
- in
- Journal of Fixed Income
- volume
- 19
- issue
- 4
- pages
- 37 - 43
- publisher
- Portfolio Management Research
- external identifiers
-
- scopus:77956322865
- ISSN
- 1059-8596
- DOI
- 10.3905/JFI.2010.19.4.037
- language
- English
- LU publication?
- yes
- id
- 5a5afc84-fdbf-4ccd-938c-a33c7708ecf6 (old id 1758787)
- date added to LUP
- 2016-04-04 09:10:52
- date last changed
- 2022-01-29 08:39:11
@article{5a5afc84-fdbf-4ccd-938c-a33c7708ecf6,
abstract = {{The possible benefits of introducing central counterparties, or clearing houses, in the credit derivatives market is currently intensively debated among bankers and policymakers. The exact outcome of this discussion is not yet clear but regardless of how any eventual clearing is organized the actual clearing house needs to be properly capitalized and needs to maintain accurate margin (collateral) levels. In this article we therefore discuss how extreme value theory can be used to compute margin levels for such a clearing house. We present some evidence of credit derivatives price change distributions being significantly non-normal, and margins based on extreme value theory are found to be more accurate than those based on normal or historical distributions, particularly at more conservative margin levels.}},
author = {{Byström, Hans}},
issn = {{1059-8596}},
keywords = {{extreme value theory; clearing house; central counterparty; margin; credit derivative; OTC; iTraxx}},
language = {{eng}},
number = {{4}},
pages = {{37--43}},
publisher = {{Portfolio Management Research}},
series = {{Journal of Fixed Income}},
title = {{Margin Setting in Credit Derivatives Clearing Houses}},
url = {{http://dx.doi.org/10.3905/JFI.2010.19.4.037}},
doi = {{10.3905/JFI.2010.19.4.037}},
volume = {{19}},
year = {{2010}},
}