Journal of Financial Market Infrastructures

Initial margin estimations for credit default swap portfolios

Stanislav Ivanov

  • It is argued that simulation techniques for computing Initial Margin (IM) requirements at Central Counterparties are appropriate and needed.
  • Robust and capital efficient IM approach for portfolios of Credit Default Swap instruments is presented.
  • The approach features heavy-tailed asymmetric univariate distributions combined in a multivariate distribution via copula techniques.

In this paper, a clearinghouse framework to establish initial margin requirements for portfolios of credit default swap instruments is presented. The estimation of portfolio risk, attributed to credit spread dynamics, features large-scale Monte Carlo simulations. It is argued that copula-based Monte Carlo implementations possess certain advantages over alternative techniques. Copula-based Monte Carlo simulations are suitable for risk management applications at clearinghouses and provide a robust, capital-efficient and flexible modeling approach to assess the risk of complex portfolios.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here