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The structural comparison of central counterparty interoperability

Author

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  • Xiaobing Feng

    (Shanghai University of International Business and Economics, Shanghai 201620, P. R. China;
    Shanghai Jiao Tong University, Shanghai 200240, P. R. China;
    Polymer Center, Department of Physics, Boston University, Boston, MA 02215, United States)

  • Matthew Pritsker

    (Federal Reserve Bank of Boston, Boston, MA 02210, United States)

Abstract

While a more integrated central counterparty (CCP) network via interoperability will provide users more cost efficient clearing and settlement services, it also increases the default transmission through the system. Using epidemic spreading model, it is found that a vertically interoperated CCP network is more robust compared with a horizontally interoperated one when certain condition is satisfied. Variation of the different transmission rates from both internal and external sources leads to different equilibrium. The safe range which is free from the crisis explosion state is identified and can be reached with certain policy coordination among nations.

Suggested Citation

  • Xiaobing Feng & Matthew Pritsker, 2014. "The structural comparison of central counterparty interoperability," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 25(10), pages 1-21.
    • Handle: RePEc:wsi:ijmpcx:v:25:y:2014:i:10:n:s0129183114500491
    DOI: 10.1142/S0129183114500491
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    References listed on IDEAS

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    1. Renault, F., 2010. "Concentration risk and the optimal number of central counterparties for a single asset," Financial Stability Review, Banque de France, issue 14, pages 169-176, July.
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    Cited by:

    1. Berndsen, Ron, 2020. "Five Fundamental Questions on Central Counterparties," Other publications TiSEM 1f3bd844-92ab-4104-8f57-9, Tilburg University, School of Economics and Management.

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