Since the financial crisis, the global derivatives market has been increasingly reliant on central counterparties (CCPs) to protect market participants from counterparty losses when faced with major market shocks.
Current risk models that quantify a clearing member’s counterparty credit risk to a CCP are generally inadequate because they assume that the behaviour of each clearing member (CM) is homogeneous. This fails to account for the potential of a small CM to take on outsized and unhedged positions, which can introduce as much credit risk as all the other CMs combined. This indirectly increases the credit risk of other CMs because of the complex loss-sharing mechanisms that have been adopted by CCPs.
Join Deloitte, Simudyne and Cloudera to learn how to better identify and protect against CCP risks. Deloitte and Simudyne will present a new approach in modeling CCP risk exposures using Agent Based Model Simulations running on Cloudera’s enterprise data cloud.
Key advantages to this approach will be demonstrated:
Quantify counterparty credit risks to one or more CCPs and make decisions on membership of the CCP.
Stress test the effectiveness of various risk-mitigating procedures to keep the overall credit risk at a minimum.
Enable a prescriptive yet quantitative approach for regulators to help identify potential trigger events resulting in systemic risk exposures that go beyond the limits of historical experience.