The CCP price: users fear modelling mishaps

The health of the financial system increasingly depends on the pricing models used at a handful of derivatives clearing houses. With these venues planning to take on trickier products, some sceptics are asking whether their models are up to the job. Laurie Carver reports

Kim Taylor

When people talk casually about the price of a derivative, it’s not always clear what they mean – it could be what they think the price should be, it could be the bid or the offer, or a mid-point aggregation of market quotes. But for products that have to be cleared by a central counterparty (CCP), one price trumps the rest – the CCP price.

This value sets how much initial and variation margin needs to be paid, the amount a member firm has to sink into the CCP’s default fund, and, by extension

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