Market Liquidity, Closeout Procedures and Initial Margin for CCPs

Five Fundamental Questions on Central Counterparties

“…Chamorro-Courtland (2010) studies the legal concepts of novation and open offer and recommends to CCPs to precisely specify in their rulebooks the moment when novation takes place to reduce legal risk. Cerezetti et al (2019b) finds that hedging costs vary more than commonly thought and there are multiple ways of attaining the minimum cost. Vicente et al (2015) offer a statistical model for a close out strategy for multi asset class CCPs.…”

Multiplex Network Analysis of the UK OTC Derivatives Market

“…In Paddrik et al (2016) VMs are computed based on the impact the CCAR stress test has on credit ratings, which in turn influence the net present value of the open derivative positions. Given the greater complexity of our network, which includes different classes of contracts, here we take a simpler approach whereby shocks are estimated by means of an impact valuation model (Bardoscia et al, 2015(Bardoscia et al, , 2017Cerezetti et al, 2017;Heath et al, 2016). This allows us to disregard the complexity of repricing all derivative contracts and, at the same time, it permits us to study the response of the system to a wide class of shocks.…”

Fundamental questions on central counterparties: A review of the literature

“…He recommends that CCPs formally specify the exact moment that novation takes place, to reduce legal risk. Cerezetti, Karimalis et al (2019) find that hedging costs vary more than commonly thought and that there are multiple ways of attaining the minimum cost. Vicente and Cerezetti (2015) offer a statistical model for a closeout strategy for multiasset class CCPs.…”