Murphy, D., Vasios, M. & Vause, N. (2014) “An investigation into the procyclicality of risk-based initial margin models“, VoxEU Organisation, 06 Ιουνίου.
Initial margin models are often procyclical, raising margin requirements at times of market stress, which can exacerbate that stress. This column proposes quantitative measures of procyclicality both over the cycle and over liquidity planning horizons. If market participants disclosed these procyclicality measures of their margin models, this could help counterparties to anticipate potential increases in margin requirements, and to prepare accordingly.
Initial margin requirements for a portfolio of derivatives are typically calculated using a risk model, such as one of the well-known family of value-at-risk models. Most common risk models are procyclical. Margin requirements for the same portfolio are higher in times of market stress and lower in calm conditions. This can be an undesirable property, as a rise in margin requirements during a period of market stress could cause market participants to face funding strains.
Σχετικές αναρτήσεις:
- Belke, Α., Oeking, Α. & Setzer, R. (2014) “Exports and Capacity Constraints: A smooth transition regression model for six euro-area countries“, Economic Policy, CEPS Working Documents, 06 Μαΐου.
- Vuillemey, G. and Peltonen, T., (2013) “Disentagling the Bond-CDS Nexus: A stress test model of the CDS market“, European Central Bank, Working Paper No.1599, Οκτώβριος.
- Papadimitriou, D., Zezza, G. & Nikiforos, M. (2013) “A Levy Institute Model for Greece“, Levy Institute.