|
Post by Sapphire Capital on Oct 4, 2008 1:11:59 GMT 4
Default Risk on Derivatives Exchanges: Evidence from Clearing-House Data Robert A. Jones Simon Fraser University - Department of Economics Christophe Perignon HEC Paris June 25, 2008 Abstract: In this paper, we analyze empirically the clearing house exposure to the risk of default by a clearing house member. Using actual daily data on margins and variation margins for all clearing members of the Chicago Mercantile Exchange's clearing house, we identify many occurrences when the member's daily loss exceeds his posted margin. Furthermore, we find that the major source of default risk for a clearing member is proprietary trading and not trading by customers. In order to quantify the default risk exposure, we provide a characterization of the tail risk of the clearing house using Extreme Value Theory. We then design and price a realistic insurance contract covering the loss to the clearing house from default by one or several clearing members. We investigate the impact on the insurance premium of including data from the Black Monday of 1987 in our sample. Our empirical analysis also allows us to put a dollar amount on the service provided by the Federal Reserve, which is the implicit insurer of the clearing house. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1151279_code271616.pdf?abstractid=1095695&mirid=3
|
|