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Article: OTC Margin Models Landscape

05 December 2012 | Bill Hodgson

Given today's story at Risk Magazine about SwapClear tuning their IM model for a low interest rate environment, it's interesting that more or less all the other CCPs use a similar model (for Rates), and perhaps will be looking again at whether they are also capturing sufficient IM.  From publicly available information, here's how the various margin models stack up (if anyone can fill in the blanks or improve on this, please let me know): (Click to enlarge the image)


Comments

The paper from ASX sets out the parameters for a CCP, but are they actually building one? Also did Australia decide whether to let LCH operate domestically?

Hi Bill Projected Theoritical prices are calculated outside SPAN using an in-house pricing model (which uses the different factors related to a CDS contract such as the recovery rate, fixed rate.... ) . Still need of course 16 scenarios to be provided in the SPAN file parameter an also need Inter Spread Credit and Intra Spread Charge for the calculation of the initial margin in SPAN.

Thanks, that makes sense, but can SPAN really take into account the many factors which affect a CDS portfolio? Unless of course the number of scenarios goes up and includes more market parameters?

Hello Bill thanks for the information. For the cdsclear service, lch effectively uses span but only for the initial Margin calculation , the risk array is calculated outside span with a on-house formula.

I wonder what the business case looks like. It's very popular building local clearing for local people lately. Happy Christmas, Bill

much all the CCPs are using Historic VaR for their Rates business, as evident in this chart. At a recent event, I pointed out that VaR and methods related to distributions have become key to

much all the CCPs are using Historic VaR for their Rates business, as evident in this chart. At a recent event, I pointed out that VaR and methods related to distributions have become key to

Reblogged this on Carl A R Weir's Blog.

background click over to the CCP margin models landscape, or forfull story is over at Risk:Remembering Lehman: CCPs hardwire collapse into models