Clearing House, Margin Requirements, and Systemic Risk

Review of Futures Markets, Vol. 19 (2011)

17 Pages Posted: 21 Apr 2018

See all articles by Jorge Cruz Lopez

Jorge Cruz Lopez

University of Western Ontario; Financial Network Analytics (FNA)

Jeffrey H. Harris

American University - Department of Finance and Real Estate

Christophe Pérignon

HEC Paris - Finance Department

Date Written: March 21, 2011

Abstract

Margins are the major safeguards against default risk on a derivatives exchange. When the clearing house sets margin requirements, it does so by only focusing on individual clearing firm positions (e.g., the SPAN system). We depart from this traditional approach and present an alternative method that accounts for inter-dependencies among clearing members when setting margins. Our method generalizes the SPAN system by allowing individual margins to increase when clearing firms are more likely to be in financial distress simultaneously.

Keywords: derivatives, tail risk, default risk, extreme dependence, copulas

JEL Classification: G13

Suggested Citation

Cruz Lopez, Jorge and Harris, Jeffrey H. and Pérignon, Christophe, Clearing House, Margin Requirements, and Systemic Risk (March 21, 2011). Review of Futures Markets, Vol. 19 (2011), Available at SSRN: https://ssrn.com/abstract=3155437

Jorge Cruz Lopez (Contact Author)

University of Western Ontario ( email )

Social Science Centre, Room 4071
London, Ontario N6A 5C2
Canada
+1 (519) 661 2111 ext. 85323 (Phone)

HOME PAGE: http://economics.uwo.ca/people/faculty/cruzlopez.html

Financial Network Analytics (FNA) ( email )

4-8 Crown Place
London, EC2A 4BT
United Kingdom

HOME PAGE: http://fna.fi/company/jorge-cruz-lopez/

Jeffrey H. Harris

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-6669 (Phone)

Christophe Pérignon

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

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