What Happens when Peter can't Pay Paul: Risk Management at Futures Exchange Clearinghouses

We model a futures exchange's clearinghouse as a "bank" holding a portfolio of credit lines available to its clearing members and collateralized with clearing margins or, equivalently, a portfolio of short European put basket options. Consequently, the "bank" model measures the clearinghouse's risk exposure as the sum of the payoff functions of these put options, emphasizing the portfolio diversification and the option-like payoffs. The model is used to assess exchange's clearinghouse's liquidity and credit risk exposure. The model provides exchange clearinghouses and government regulators with a theoretical framework of risk management that systematically integrates clearing margin requirements,credit lines and economic capital.


Issue Date:
2006
Publication Type:
Conference Paper/ Presentation
Record Identifier:
http://ageconsearch.umn.edu/record/21087
PURL Identifier:
http://purl.umn.edu/21087
Total Pages:
33
Series Statement:
Selected Paper 155839




 Record created 2017-04-01, last modified 2018-01-22

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