Corporate Production and Hedging Decisions Under Dodd-Frank and EMIR

18 Pages Posted: 6 Sep 2014

See all articles by Frank Lehrbass

Frank Lehrbass

L*PARC (Lehrbass Predicitive Analytics and Risk Consulting); FOM University of Applied Sciences for Economics and Management; University of the Bundesbank

Date Written: September 4, 2014

Abstract

We explore the consequences from the two regulatory frameworks Dodd-Frank and EMIR for industrial corporates. We point out that - by falling under the clearing obligation - not only the corporate’s option to decide freely on its positioning within the well-known “Risk Triangle” is extinguished but that real production decisions are affected negatively as well. We discuss how the impact of the liquidity constraint can be softened by carrying a liquidity buffer, which is adjusted dynamically to cap the probability of illiquidity at a desired small percentage. For exposition we explore the concept of margin at risk for a prototypical power producer and illustrate which type of model is required to determine the size of the liquidity buffer and how the buffer can be set up practically.

Keywords: Industry risk management, corporate risk management, liquidity risk management, liquidity buffer, liquidity value at risk, margin at risk, treasury management, EMIR, Dodd-Frank

JEL Classification: C3, D2, E5, F2, F3, G1, G11, G17, G2, G28, G3, K23, L1, L9, M1

Suggested Citation

Lehrbass, Frank, Corporate Production and Hedging Decisions Under Dodd-Frank and EMIR (September 4, 2014). USAEE Working Paper No. 14-170. Available at SSRN: https://ssrn.com/abstract=2491783 or http://dx.doi.org/10.2139/ssrn.2491783

Frank Lehrbass (Contact Author)

L*PARC (Lehrbass Predicitive Analytics and Risk Consulting) ( email )

Dusseldorf
Germany

HOME PAGE: http://lehrbass.de

FOM University of Applied Sciences for Economics and Management ( email )

Toulouser Allee 53
Dusseldorf, 40476
Germany

University of the Bundesbank ( email )

Schloss
Hachenburg, 57627
Germany

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