Publication Type
Journal Article
Version
acceptedVersion
Publication Date
6-2021
Abstract
Time is valuable, particularly in stressed markets. Because central counterparties (CCPs) have become systemically important, we need to understand the dynamics of their exposure toward clearing members at high frequencies. We track such exposure and decompose it, yielding the following insights. The composition of CCP exposure is fundamentally different in the tails. At extreme levels or during rapid increases, there is elevated crowding. This is the result of clearing members all concentrating their positions on a single security or a particular portfolio, which is desirable if motivated by hedging but worrying if due to speculation.
Keywords
Central counterparties (CCPs), crowding risk, market stress
Discipline
Finance and Financial Management
Research Areas
Finance
Publication
Management Science
Volume
67
Issue
6
First Page
3596
Last Page
3617
ISSN
0025-1909
Identifier
10.1287/mnsc.2020.3601
Publisher
Institute for Operations Research and Management Sciences
Citation
HUANG, Wenqian; MENKVELD, Albert J.; and YU, Shihao.
Central counterparty exposure in stressed markets. (2021). Management Science. 67, (6), 3596-3617.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7505
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1287/mnsc.2020.3601