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Systemic Risk and Central Counterparty Clearing

Thursday 28th August 2014 - 09:00 to 09:30
INI Seminar Room 1
This paper studies financial networks in a stochastic framework. We apply a coherent systemic risk measure to examine the effects on systemic risk and liquidation losses of multilateral clearing via a central clearing counterparty (CCP). We find that a CCP always improves banks' surplus, and reduces banks' liquidation and shortfall losses. In return, the CCP introduces tail risk, which can lead to higher systemic risk. We provide sufficient conditions in terms of the CCP's fee and guarantee fund policy for a reduction of systemic risk. In a numerical example we find that feasible Pareto optimal fee and guarantee fund policies come along with reduced systemic risk. This is joint work with Hamed Amini and Andreea Minca.
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Presentation Material: 
University of Cambridge Research Councils UK
    Clay Mathematics Institute London Mathematical Society NM Rothschild and Sons