A Sound Modelling and Backtesting Framework for Forecasting Initial Margin Requirements

14 Pages Posted: 17 Jan 2016 Last revised: 19 Jan 2017

See all articles by Fabrizio Anfuso

Fabrizio Anfuso

Credit Suisse Securities (Europe) Limited

Daniel Aziz

Credit Suisse Securities (Europe) Limited

Paul Giltinan

Quaternion Risk Management

Klearchos Loukopoulos

Credit Suisse Securities (Europe) Limited

Date Written: January 11, 2017

Abstract

The introduction by regulators of mandatory margining for bilateral OTCs is going to have a major impact on the derivatives market, particularly in light of the additional funding costs and liquidity requirements that large financial institutions will face. Fabrizio Anfuso, Daniel Aziz, Paul Giltinan and Klearchos Loukopoulos propose in the following a simple and consistent framework, equally applicable to non-cleared and cleared portfolios, to develop and backtest forecasting models for Initial Margin.

Keywords: Initial Margin, BCBS-IOSCO, CCP, OTC, Clearing, Counterparty Credit Risk, XVA, Liquidity, Funding costs

JEL Classification: C12, C13, C15, C52, C53

Suggested Citation

Anfuso, Fabrizio and Aziz, Daniel and Giltinan, Paul and Loukopoulos, Klearchos, A Sound Modelling and Backtesting Framework for Forecasting Initial Margin Requirements (January 11, 2017). Available at SSRN: https://ssrn.com/abstract=2716279 or http://dx.doi.org/10.2139/ssrn.2716279

Fabrizio Anfuso (Contact Author)

Credit Suisse Securities (Europe) Limited ( email )

One Cabot Square
London, E14 4QJ
United Kingdom

Daniel Aziz

Credit Suisse Securities (Europe) Limited ( email )

One Cabot Square
London, E14 4QJ
United Kingdom

Paul Giltinan

Quaternion Risk Management ( email )

54 Fitzwilliam Square North
Dublin, D02X308
Ireland

HOME PAGE: http://www.quaternion.com

Klearchos Loukopoulos

Credit Suisse Securities (Europe) Limited ( email )

One Cabot Square
London, E14 4QJ
United Kingdom

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