IDEAS home Printed from https://ideas.repec.org/a/aza/rmfi00/y2024v17i3p286-293.html
   My bibliography  Save this article

An innovative approach for optimising CCP default management through agent-based modelling

Author

Listed:
  • Wise, Richard

    (Group Chief Risk Office, Hong Kong Exchanges & Clearing Limited, Hong Kong)

  • Chen, Tao

    (Group Head of Quantitative Risk Management, Hong Kong Exchanges & Clearing Limited, Hong Kong)

  • Zhu, Dingqiu

    (Head of Quantitative Solution, Quantitative Risk Management Department, Hong Kong Exchanges & Clearing Limited, Hong Kong)

Abstract

This paper develops a rigorous model to analyse the market impact of liquidation. Invoking innovative techniques from agent-based simulation, we construct the order book's reaction function to liquidation. A methodology is then developed for establishing the optimal close-out strategy which balances the velocity of positional liquidation with that consequential market reaction function. This model can be used in parallel to more traditional calculations of market volatility to ensure that the overall risk capitalisation of a central clearing counterparty remains robust. In the case of financial markets, agent-based models often seek to account for the so-called stylised facts of financial markets. Stylised facts are simply empirical regularities that appear to be stable across markets and over time. Such facts range from statistical concepts, such as the distribution of returns, to more abstract notions such as stock market bubbles and crashes.

Suggested Citation

  • Wise, Richard & Chen, Tao & Zhu, Dingqiu, 2024. "An innovative approach for optimising CCP default management through agent-based modelling," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 17(3), pages 286-293, June.
    • Handle: RePEc:aza:rmfi00:y:2024:v:17:i:3:p:286-293
    as

    Download full text from publisher

    File URL: https://hstalks.com/article/8501/download/
    Download Restriction: Requires a paid subscription for full access.
    File URL: https://hstalks.com/article/8501/
    Download Restriction: Requires a paid subscription for full access.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    margin; concentration risk; liquidity risk; central clearing counterparty; CCP; default management; agent-based model; ABM;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aza:rmfi00:y:2024:v:17:i:3:p:286-293. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Henry Stewart Talks (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.