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CoMargin

Author

Listed:
  • Jorge A. Cruz Lopez

    (Bank of Canada - Bank of Canada)

  • Jeffrey H. Harris

    (AU - American University Washington D.C.)

  • Christophe Hurlin

    (LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

  • Christophe Pérignon

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

Abstract

We present CoMargin, a new methodology to estimate collateral requirements in derivatives central counterparties (CCPs). CoMargin depends on both the tail risk of a given market participant and its interdependence with other participants. Our approach internalizes trading externalities and enhances the stability of CCPs, thus, reducing systemic risk concerns. We assess our methodology using proprietary data from the Canadian Derivatives Clearing Corporation that include daily observations of the actual trading positions of all of its members from 2003 to 2011. We show that CoMargin outperforms existing margining systems by stabilizing the probability and minimizing the shortfall of simultaneous margin-exceeding losses.

Suggested Citation

  • Jorge A. Cruz Lopez & Jeffrey H. Harris & Christophe Hurlin & Christophe Pérignon, 2015. "CoMargin," Working Papers halshs-00979440, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00979440
    DOI: 10.2139/ssrn.1943562
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00979440v3
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    Other versions of this item:

    • Jorge Cruz Lopez & Jeffrey Harris & Christophe Hurlin & Christophe Pérignon, 2017. "CoMargin," Post-Print hal-03579309, HAL.

    References listed on IDEAS

    as
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    More about this item

    Keywords

    Collateral; Central Counterparties (CCPs); Derivatives Markets; Extreme Dependence;
    All these keywords.

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