39 Pages Posted: 16 Dec 2016
Date Written: December 16, 2016
Time is valuable, in particular in stressed markets. As central clearing parties (CCPs) have become systemically important institutions, it is desirable to track their exposure towards clearing members in real time. We propose a risk dashboard that not only tracks such exposure, but also offers a decomposition. This enables a CCP to be alerted by sudden large increases, but also to identify their root causes. When implementing the approach on real-world data we find fat tails. Zooming in on extreme increases, we find that they are disproportionately due to crowded trades among intermediaries — desirable if motivated by hedging, worrying if due to speculation.
Keywords: CCP, exposure, systemic risk, real-time
JEL Classification: G10
Suggested Citation: Suggested Citation
Huang, Wenqian and Menkveld, Albert J., Systemic Risk in Real Time: A Risk Dashboard for Central Clearing Parties (CCPs) (December 16, 2016). Available at SSRN: https://ssrn.com/abstract=2886167 or http://dx.doi.org/10.2139/ssrn.2886167