Stress Indicator for Clearing Houses
As a regulatory answer to the crisis, financial instruments are increasingly forced to be cleared centrally even in the OTC markets; therefore, risk management of central clearinghouses has become a central issue. A key term of the regulation is a stress event; however, it is not specified in the le...
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| Published in: | Central European business review 2016-01, Vol.5 (4), p.47-60 |
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| Main Authors: | , , , |
| Format: | Article |
| Language: | eng |
| Subjects: | |
| Online Access: | Get full text |
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| Summary: | As a regulatory answer to the crisis, financial instruments are increasingly forced to be cleared centrally even in the OTC markets; therefore, risk management of central clearinghouses has become a central issue. A key term of the regulation is a stress event; however, it is not specified in the legislation what should be meant under stress in the case of a clearinghouse. To find an objective stress indicator, we built up a micro-simulation model of a hypothetical clearinghouse operating on the U.S. equity market between 2007 and 2015. Based on this, we developed a logit regression model to specify an appropriate stress indicator and we showed that our “tailor-made” stress index calibrated to the position of the clearinghouse performs significantly better than the usual market proxies for financial stress. |
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| ISSN: | 1805-4862 1805-4854 1805-4862 |