Technical paper/Initial margin
Bridging the gap risk reloaded: modelling wrong-way risk and leverage
A model extends the counterparty risk calculation to include nonlinear and complex portfolios
Emulating the Standard Initial Margin Model: initial margin forecasting with a stochastic cross-currency basis
The authors propose a stochastic cross-currency basis model extension to resolve the impact of missing risk factors when estimating initial margin and margin valuation adjustments in cross-currency basis swaps.
What can we expect from a good margin model? Observations from whole-distribution tests of risk-based initial margin models
This paper offers a means of testing initial margin models based on their predictions of the whole future distribution of returns of the relevant portfolio which is demonstrated to be more powerful than typical backtesting approaches.
Mitigating margin procyclicality: the effectiveness of anti-procyclicality measures during the Covid-19 stress event
This paper analyzes the effectiveness of APC measures implemented by central counterparties for clearing member and client margins, with effectiveness sensitive to the details of calibration and type of portfolios to which the measure is applied.
Procyclicality of central counterparty margin models: systemic problems need systemic approaches
In this paper the author argues that the focus on initial margin models is misplaced, and the reasons for this are illustrated by empirically testing the performance of standard initial margin models during the March 2020 events.
Estimating future value-at-risk from value samples, and applications to future initial margin
This paper discusses several methods to estimate fVaR or margin requirements and their expected time evolution, from simple options to more complex interest swaps.
A cost–benefit analysis of anti-procyclicality: analyzing approaches to procyclicality reduction in central counterparty initial margin models
In this paper, the authors suggest how margin setters and policy makers might measure procyclicality and target particular levels of it by recalibrating parameters in a margin model to reduce its procyclicality or by applying an anti-procyclicality tool.
Procyclicality mitigation for initial margin models with asymmetric volatility
In this paper, we explore the procyclicality of initial margin requirements based on VaR volatility models.We suggest procyclicality can be reduced using a three-regime model rather than using ad hoc tools.
Smart derivative contracts: detaching transactions from counterparty credit risk
Introducing deterministic termination rules to eliminate counterparty risk in smart derivatives
One bad apple: default risk at CCPs
One clearing member's disproportionately large position increases the credit risk for all CCP members
Study of correlation impact on credit default swap margin using a GARCH–DCC-copula framework
In this paper, the authors establish generalized autoregressive conditional heteroscedasticity–dynamic conditional correlation (GARCH–DCC) and constant conditional correlation (CCC) copula model frameworks to study time-varying correlation among credit…
Funding and credit risk with locally elliptical portfolio processes: an application to central counterparties
In this paper, the authors extend the scaling approach of Andersen et al (2017a) from a model driven by Brownian motion to one driven by an arbitrary isotropic Lévy process.
Central counterparty anti-procyclicality tools: a closer assessment
This paper investigates whether the substantial focus placed on the procyclicality of initial margin reflects both the original concerns at the time of the 2007-8 financial crisis and the intrinsic 'modus operandi' of CCPs.
Fast stochastic forward sensitivities in Monte Carlo simulations using stochastic automatic differentiation (with applications to initial margin valuation adjustments)
In this paper, the author applies stochastic (backward) automatic differentiation to calculate stochastic forward sensitivities.
Efficient Simm-MVA calculations for callable exotics
Algorithmic differentiation are used to simulate sensitivities to calculate MVA
Initial margin with risky collateral
This paper explores the complication of calculating the IM amount requirement when collateral comprises risky assets in a parametric VaR framework. The authors show that the required IM amount can be calculated by solving a quadratic inequality.
Managing market liquidity risk in central counterparties
This paper discusses the different approaches to incorporating market liquidity risk within a CCP’s default waterfall and the challenges that these approaches pose.
Initial margin model sensitivity analysis and volatility estimation
This paper presents a new approach to parameter selection based on the statistical properties of the worst loss over a margin period of risk estimated by the margin model under scrutiny.
Accounting for initial margin under IFRS 13
Chris Kenyon and Richard Kenyon show why initial margin should be part of the fair value of a derivative