Murphy, David
[Verfasser:in]
;
Vasios, Michalis
[Sonstige Person, Familie und Körperschaft];
Vause, Nicholas
[Sonstige Person, Familie und Körperschaft]
An Investigation into the Procyclicality of Risk-Based Initial Margin Models
Erschienen in:Bank of England Financial Stability Paper ; No. 29
Umfang:
1 Online-Ressource (19 p)
Sprache:
Englisch
DOI:
10.2139/ssrn.2437916
Identifikator:
Entstehung:
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 16, 2014 erstellt
Beschreibung:
The initial margin requirements for a portfolio of derivatives are typically calculated using a risk model. Common risk models are procyclical: margin requirements for the same portfolio are higher in times of market stress and lower in calm markets. This procyclicality can cause liquidity stress whereby parties posting margin have to find additional liquid assets, often at just the times when it is most difficult for them to do so. Hence regulation has recognised that, subject to being adequately risk sensitive, margin models should not be ‘overly' procyclical. There is, however, no standard definition of procyclicality.This paper proposes two types of quantitative measure of procyclicality: one that examines margin variation across the cycle and one that focuses on short-term margin increases. It then studies, using historical and simulated data, various margin models with regard to both their risk sensitivity and the proposed procyclicality measures. It finds that models which pass common risk sensitivity tests can have very different levels of procyclicality.The paper recommends that CCPs and major dealers should disclose the procyclicality properties of their margin models, perhaps by reporting the proposed procyclicality measures. This would help derivatives users to anticipate potential margin calls and ensure they have adequate holdings of or access to liquid assets