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Co Margin
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DOI：10.1017/S0022109017000709.png)
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Abstract
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We present CoMargin, a new methodology to estimate collateral requirements in derivatives central counterparties (CCPs). CoMargin depends on both the tail risk of a given market participant and its interdependence with other participants. Our approach internalizes trading externalities and enhances the stability of CCPs, thus reducing systemic risk concerns. We assess our methodology using proprietary data from the Canadian Derivatives Clearing Corporation that include daily observations of the actual trading positions of all of its members from 2003 to 2011. We show that CoMargin outperforms existing margining systems by stabilizing the probability and minimizing the shortfall of simultaneous margin-exceeding losses.
Keywords:
STOCK INDEX FUTURES
DEFAULT SWAP MARKET
VALUE-AT-RISK
SYSTEMIC RISK
COUNTERPARTY RISK
CLEARING HOUSES
DEPENDENCE
LIQUIDITY
MODELS
INSURANCE
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