Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2014-06-02
Number: 14-065/IV/DSF75
Author-Name: Albert J. Menkveld
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Title: Crowded Trades: An Overlooked Systemic Risk for Central Clearing Counterparties
Abstract: Counterparty default risk might hamper trade and trigger a financial crisis. The introduction of a central clearing counterparty (CCP) benefits trading but pushes systemic risk into CCP default. Standard risk management strategies at CCPs currently overlook a risk associated with crowded trades. This paper identifies it, measures it, and proposes a margin methodology that accounts for it. The application to actual CCP data illustrates that this hidden risk can become large, in particular at times of high CCP risk.
Classification-JEL: G00
Keywords: Financial economics
File-Url: https://papers.tinbergen.nl/14065.pdf
File-Format: application/pdf
File-Size: 531744 bytes
Handle: RePEc:tin:wpaper:20140065