# CCP

WHAT IS THIS? A central counterparty (CCP) manages default risk by collecting initial and variation margin from both parties to a trade. Spill-over losses are absorbed via a default fund to which all members contribute – introducing a degree of mutualised risk – and by the CCP’s own capital. The concept is an old one that was extended to over-the-counter derivatives in the aftermath of the financial crisis.

##### Nondefault loss allocation at central counterparties

In this paper, the authors answer three questions about the appropriate allocation of nondefault losses at central counterparties.

##### Estimating “hedge and auction” liquidation costs in central counterparties: a closeout risk approach

This paper shows how the closeout risk framework can be extended to realistically represent and simulate the potential outcomes of “hedge and auction” default management policies currently implemented by several major central counterparties.

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Three factors slashed size of book by 25%, including move to treat margin as settlement

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Questions about post-Brexit status of UK CCP could spark mass migration – and severe volatility

##### CCP stress testing gets real

Quants propose technique to generate effective, plausible CCP stress-testing scenarios

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Two CCPs report interest from LCH customers; banks expect first book transfers in early 2018

##### Extremely (un)likely: a plausibility approach to stress testing

CCP’s risk managers propose a framework for generating extreme but plausible stress scenarios

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##### A balanced approach to central counterparty margining

This paper is meant to serve as a comparison of the approaches and margin models employed by CCPs.

##### Managing market liquidity risk in central counterparties

This paper discusses the different approaches to incorporating market liquidity risk within a CCP’s default waterfall and the challenges that these approaches pose.

##### Initial margin model sensitivity analysis and volatility estimation

This paper presents a new approach to parameter selection based on the statistical properties of the worst loss over a margin period of risk estimated by the margin model under scrutiny.

##### Performance testing of margin models using time series similarity

This paper proposes a performance test based on empirical similarity that would account for margin shortfall, procyclicality and efficiency in a single score.

##### Cleared margin setting at selected central counterparties

In this paper, the authors address one aspect of CCP risk management: initial margining practices. The paper provides a historical review of margining at selected CCPs as well as an overview of their current margin policies.

##### Twin member default would hit up to 23 CCPs

New FSB analysis reveals interdependencies of clearing system

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