Quantification of Central Counterparty Risk: A Clearing Member’s Perspective

Abstract

As central counterparties (CCPs) become more integral in modern financial markets for OTC derivatives, it is essential to understand and measure not only the risks they pose to the rest of the financial system, but also the risks they pose to the individual financial institutions that clear with them. This paper will address the particular issue of quantifying CCP risk from the perspective of a clearing member through a bottom-up model for the interaction between a CCP and its individual clearing members.