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Margin Setting in Credit Derivatives Clearing Houses

In English

Författare

Summary, in English

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.

Publiceringsår

2010

Språk

Engelska

Sidor

37-43

Publikation/Tidskrift/Serie

Journal of Fixed Income

Volym

19

Issue

4

Dokumenttyp

Artikel i tidskrift

Förlag

Portfolio Management Research

Ämne

  • Economics

Nyckelord

  • extreme value theory
  • clearing house
  • central counterparty
  • margin
  • credit derivative
  • OTC
  • iTraxx

Status

Published

ISBN/ISSN/Övrigt

  • ISSN: 1059-8596