Variation and Initial Margin Required by Central Counterparty Clearing Houses
John Fennell and Yuting Wei
Introduction
Variation and Initial Margin in the ISDA Credit Support Annex
Variation and Initial Margin Required by Central Counterparty Clearing Houses
Margin Requirements for Over-the-Counter Derivatives: A Supervisory Perspective
The Emergence and Concepts of the SIMM Methodology
The ISDA Standard Initial Margin Model Backtesting Framework
The Impact of Margin on Regulatory Capital
XVA for Margined Trading Positions
Modelling Forward Initial Margin Requirements for Bilateral Trading
Forward Valuation of Initial Margin in Exposure and Funding Calculations
Margin Value Adjustment for CCPs with Q-Simulated Initial Margin
Bilateral Exposure in the Presence of Margin
Central Counterparty Risk
Robust Computation of XVA Metrics for Central Counterparty Clearing Houses
Efficient Initial Margin Optimisation
Procyclicality in Sensitivity-Based Margin Requirements
Systemic Risks in Central Counterparty Clearing House Networks
A CCP is a financial institution that provides clearing and settlement services for trades in various cash markets, and for derivative contracts spanning a variety of asset classes. The CCP stands between counterparties (clearing members or sponsored access clients11Sponsored access clients are an innovation where an institutional client (sponsored member) obtains sponsorship in a CCP from a direct clearing member (sponsoring member) and the sponsored member can take on the CCP directly and post initial margin to it, with the sponsoring member backstopping the sponsored member through the deposit guarantee fund and any assessments that may be applicable within the CCP’s default waterfall.) and transfers the risk the two counterparties have against each other to the CCP through a process called novation.22Novation is the substitution of an original contract with a new contract. When a trade is novated to a CCP, the latter steps in between parties of the trade and becomes a counterparty to both the buyer and the seller of the trade. The original contract between buyer and seller ceases to exist. Novation provides clearing members with the opportunity to substitute and net their
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